What would student loan forgiveness do to the economy?
If you have too much student loan debt, you won't be able to save as much for retirement. Student loan debt can lower your credit score, especially if you fail to make on-time payments. Student debts may be forgiven under certain circumstances, but almost never if they are in default.
When the government forgives loans, it's not erasing debt but shifting it from individuals to taxpayers. This increases government debt, which can have long-term economic consequences. Poor people might seem to benefit initially, but everyone pays the price later through potential inflation or higher taxes.
Student loan debt can prevent you from making major purchases like a home or a car. An economy may see fewer new businesses when there is more student loan debt. Student loan debt also limits consumer spending. Economic recovery can be more difficult when there are many people carrying student loan debt.
- Con 1: Student loan forgiveness is an abuse of the loan system. ...
- Con 2: Student loan debt forgiveness would disproportionately help rich or more financially secure college graduates. ...
- Con 3: Discharging student loan debt would be only a temporary bandage for the much larger problem of inflated college costs.
Cancelling student loans will increase the national debt gradually in the long-term and will increase the deficit in the year the loans are forgiven. Policymakers and advocates should worry about that increase to the same extent they worry about debt increases resulting from other policies.
If the debt forgiveness program is permitted to move forward, at a time when consumer spending already is high, it could lead to more inflation, Jones said.
Another concern of forgiving student debt is “moral hazard,” the idea that students might make riskier choices if they think their debt will end up being forgiven, Jones said.
Is that true? While student loan repayments are a burden on many households and could impact the economy, a repeat of the widespread devastation of the Great Financial Crisis seems very unlikely.
Myth: Student loan forgiveness is the fair way to help Americans escape massive amounts of debt. Fact: Borrowers signed on the dotted line for their loans. Erasing these loans does not teach borrowers to manage their debts. Moreover, the cancelation is an insult to those who diligently paid off their loans.
The national debt enables the federal government to pay for important programs and services even if it does not have funds immediately available, often due to a decrease in revenue.
How would wiping out all student loan debt change the economy?
Student loan debt slows new business growth and limits consumer spending. Broad student loan debt forgiveness may help boost the national economy by making it more affordable for borrowers to participate in it.
Some who oppose student loan forgiveness view education as a private commodity that benefits the person who purchases it."

Although loan forgiveness can impact a credit score, the effect is often temporary. And for borrowers with federal student loans in default, the Fresh Start program could give them a clean slate, removing the default from their credit reports.
While there are few direct estimates of the effect of debt cancelation in the literature, estimates based on the relationship between wealth and consumption suggest that this forgiveness could increase consumption by several billions of dollars each year in the next five to ten years.
The effect student loan debt has on the economy is similar to that of a recession: it reduces consumer spending, business growth, and homeownership. 51% of renting student borrowers have not bought a home due to student loan debt; among homeowners, 29% delayed purchasing a home due to student debt.
Right now, anyone who receives student loan forgiveness between 2021 and 2025 will not have to pay taxes on any amount of student debt forgiveness. PSLF or IDR forgiveness is a potential result for any borrower. However, not all borrowers will reach forgiveness.
- Con: Forgiving debt is not fair to people who have already made their payments. ...
- Pro: Debt forgiveness is the empathetic solution. ...
- Con: Student loan forgiveness does not address the root problem and could even exacerbate it. ...
- Pro: Debt cancellation could improve economic equity.
Student loan forgiveness is, in effect, a large stimulus package. That's likely to, in turn, bolster banks' liquidity like other waves of relief to consumers did throughout the pandemic. In the last few years, pandemic-era stimulus checks helped fuel a rise in deposits at banks.
What creates inflation? Long-lasting episodes of high inflation are often the result of lax monetary policy. If the money supply grows too big relative to the size of an economy, the unit value of the currency diminishes; in other words, its purchasing power falls and prices rise.
1 Forgiveness is fundamentally unfair because it will ultimately be paid by taxpayers—many who have faithfully paid off their student loans, worked hard to pay for college, or chose not to go to college at all.
How can student loan forgiveness be bad?
We know that canceling student-loan debt takes money from the broader tax base—mostly made up of workers who did not go to college—to subsidize the education debt of people with “valuable” degrees. We know that higher-income families tend to borrow the largest amounts.
“Blanket student loan forgiveness could create moral hazard on the part of schools,” he says. “Knowing that the students they take in have easy access to money that they will likely not have to repay could motivate schools to accept more students, or offer more programs, even in the absence of value.”
Key Takeaways. Carrying student debt can affect your ability to buy a home if your debt-to-income ratio is too high. If you have too much student loan debt, you won't be able to save as much for retirement. Student loan debt can lower your credit score, especially if you fail to make on-time payments.
Student Debt vs Income by Age Groups
Among the age groups, adults between the ages of 18 and 29 are the most likely to have student loan debt. Meanwhile, adults between the ages of 35 and 49 years old on average owe the most student loan debt.
Free College Would Produce a Strong Workforce
The expanded performance standards and new learning networks in the post-industrial economy will require workers with both broader and deeper knowledge, skills and abilities for entry-level jobs, and to keep up with the accelerated pace of lifelong learning (WEF, 2021).