Will Cancelling Student Loan Debt Hurt the Economy?

Will Cancelling Student Loan Debt Hurt the Economy?

For years, people have debated credit card debt forgiveness, but more recently, the issue of student loan debt has taken center stage. A plan put forth by President Biden would forgive up to $20,000 in student loan debt for borrowers. While some people support this idea, others are worried about how it would affect the economy. So, will the economy suffer if student loan debt is cancelled? 

Let’s look more closely.

How Much Student Loan Debt Exists?

First, it’s critical to comprehend the extent of student loan debt in the US today. The average borrower currently owes around $30,000 in student loan debt, which totals over $1.7 trillion in the United States. The borrower’s financial future may be significantly impacted by this debt, which may prevent them from beginning a family, saving for retirement, or even becoming a homeowner. Millions of People who are struggling to make ends meet could receive immediate help from the cancellation of this debt.

Inflation and Debt

The potential effect on inflation is one worry regarding the cancellation of student loan debt. There is a chance that inflation would rise when the government makes financial investments in the economy. Levy Economics Institute research, however, indicates that erasing student loan debt will likely have little to no effect on inflation. This is so because it’s likely that the money saved on student loan payments would be used to buy products and services, which would stimulate the economy and add jobs.

Potential GDP Boost

In fact, eliminating student loan debt might help the economy in the long run. According to a study by the Roosevelt Institute, eliminating student loan debt could boost GDP by up to $108 billion annually, add 1.5 million new employment each year, and improve the pace at which people buy homes. Also, because borrowers would have more spare income to spend, it might provide small businesses a much-needed boost.

Paying For The Deal

The potential effects on taxpayers of eliminating student loan debt are a further worry. Yet taxpayer money wouldn’t be used to support this idea. Instead, a tax on the wealthiest Americans—those with annual earnings exceeding $400,000—would be used to pay for it. In light of this, the idea would be advantageous for borrowers and a step toward resolving income disparity in the United States.

Is It Fair?

While eliminating student loan debt may provide a number of advantages, there are also some substantial dangers or drawbacks to take into account. One reason is that erasing student loan debt can be viewed as being unjust to people who have already repaid their debts or who decided not to borrow money in the first place. In addition, others contend that eliminating student loan debt would encourage borrowers to take on additional debt in the future if they know that it might be forgiven in the future.

Cost of Education

Concerns exist regarding the effects that erasing student loan debt might have on colleges and universities. Some claim that there would be less pressure on universities to keep tuition expenses low if students were not required to repay their loans. This argument, however, fails to acknowledge that higher education costs have been rising for years, long before the present student loan crisis.

Also, the cancellation of student loan debt can benefit colleges and institutions. Borrowers would be more likely to seek careers in public service or lower-paying fields that they are enthusiastic about if they had less debt to worry about, as opposed to concentrating just on occupations with high wages to pay off their debt. This might lead to a wider variety of employment options and a more motivated workforce.

In Conclusion

Notwithstanding some reservations, eliminating student loan debt is unlikely to have a materially detrimental effect on the economy. In reality, it might be advantageous in the long run for borrowers as well as the economy as a whole. It may also be a step towards tackling economic inequality in the US since the program is funded by a tax on the wealthiest Individuals.