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.
"And if you assume there's a likelihood it's canceled, you're going to be more likely to take out more debt up front. That's going to give colleges more pricing power to raise tuition without pressure and to offer more low-value degrees."
If you qualify for forgiveness, cancellation, or discharge of the full amount of your loan, you won't have to make any more payments on that loan. If you qualify for forgiveness, cancellation, or discharge of a part of your loan, you'll need to pay back the remaining balance.
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.
In February 2022, CRFB argued that “cancellation of all outstanding student debt would boost . . . inflation by 37 to 50 basis points.” Given that canceling all student debt is more than six times the cost of canceling $10,000, it's hard to see how these two numbers square.
Pros and Cons at a Glance
Pro 1: Student loan debt is slowing the national economy. Forgiveness would boost the economy, benefiting everyone. Read More. Con 1: Student loan forgiveness is an abuse of the loan system.
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.
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.
It penalizes hard-working Americans
We've already discussed how the poor and working classes are treated unfairly by this plan. But the unfairness extends to many middle class families as well who worked hard to pay off their student loans or their children's student loans.
Some who oppose student loan forgiveness view education as a private commodity that benefits the person who purchases it."
Consistent with predictions derived from theories of operant learning, perhaps forgiving relatively disagreeable or negative partners led to decreased self-respect and increased problem severity in those studies because it failed to discourage those partners from continuing their negative behaviors.
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.
No, the government will not take your refund (for now). But before you start celebrating, here are five things you need to know about your student loan in 2024. Your student loan interest will continue to accrue.
Research has shown that cancellation would boost GDP by billions of dollars and add up to 1.5 million new jobs, reducing the unemployment rate. 5 Workers who are Black, Latinx, immigrants, women, and those in industries paying low wages are still facing a terrible economic situation with high levels of unemployment.
Let's say you have $200,000 in student loans at 6% interest on a 10-year repayment term. Your monthly payments would be $2,220. If you can manage an additional $200 a month, you could save a total of $7,796 while trimming a year off your repayment plan.
For example, the interest on a $30,000, 36-month loan at 6% is $2,856. The same loan ($30,000 at 6%) paid back over 72 months would cost $5,797 in interest. Even small changes in your rate can impact how much total interest amount you pay overall.
Paying off such a large balance can be difficult and time consuming. For example, if you had $300,000 in federal student loans and paid them off on the standard 10-year repayment plan with a 6.22% interest rate, you'd end up with a monthly payment of $3,364 and a total repayment cost of $403,663.
If you receive full forgiveness, it'll close your loan accounts, which can affect your credit score slightly. You'll have one fewer account on your record and the average age of your accounts could decrease.
Student loans can factor into your taxes as the interest is often tax deductible. So, you can reduce your tax bill if you include the amount of interest you've paid during the tax year.
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.
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.
Your interest charges will be added to the amount you owe, causing your loan to grow over time. This can occur if you are in a deferment for an unsubsidized loan or if you have an income-based repayment (IBR) plan and your payments are not large enough to cover the monthly accruing interest.
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.