Student loan forgiveness, while providing relief to borrowers, faces criticism for its high fiscal cost (estimated at $300 billion to over $1 trillion), potential to increase inflation, and encouragement of tuition hikes. It may disproportionately benefit higher-income earners, create moral hazard for future borrowing, and impose unfairness on those who paid off loans or didn't attend college.
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.
However, the research also uncovers concerning impacts of student loan debt on financial security, including limiting housing options, delaying homeownership, and creating barriers to long-term financial planning—particularly for historically marginalized populations.
If you repay your loans under an IDR plan, the end of term balance on your student loans may be forgiven after you make a certain number of payments over 20 or 25 years (240 or 300 monthly payments). Use Loan Simulator to compare plans, estimate monthly payment amounts, and see if you're eligible for an IDR plan.
The "7-year rule" for student loans generally refers to when negative marks, like defaults, are removed from your credit report (around 7 years after the first missed payment or default date for federal loans, 7.5 years for private loans), but the debt itself doesn't disappear and must be paid off; it's also a benchmark in bankruptcy proceedings where federal loans can become dischargeable after 7 years from when payments were due, though proving "undue hardship" is required and difficult.
Under both forgiveness levels without income caps, low-income neighborhoods receive roughly 25 percent of debt forgiveness while high-income neighborhoods receive around 30 percent of forgiveness. Increasing the threshold from $10,000 to $50,000 results in a marginally larger share of forgiveness to high-income areas.
Student loan forgiveness in 2022 will not increase your federal taxable income, thanks to the latest American Rescue Plan that makes all student loan forgiveness tax-free. You may be on the hook for state tax, however.
The first economic problem with student loan forgiveness is that it is expensive, using vast sums of money that could be used for more pressing needs. Current and former students owe $1.6 trillion in federal student loans. Spending $1.6 trillion to forgive their loans will reduce the funding available for other uses.
Student Loan Borrower Statistics
20% of all American adults with undergraduate degrees have outstanding student debt; 24% postgraduate degree holders report outstanding student loans. 20% of U.S. adults report having paid off student loan debt. The 5-year annual average student loan debt growth rate is 1.66%.
What are the Cons?
Based on a monthly salary of ₹70000 and assuming no existing financial obligations (like ongoing EMIs or outstanding credit card dues), you may be eligible for a home loan amount of approximately ₹34.51 lakhs. The interest rate could range between *9.25% and 15% or higher, with a loan tenure of up to 180 months.
The loans for your course will be written off when you're 65, or 30 years after the April you were first due to repay – whichever comes first.
During his time in office, President Trump provided temporary COVID-19 relief by pausing federal student loan payments and interest, later extending it, but also signed legislation (the "Big Beautiful Bill") that capped borrowing for grad students, altered repayment options, and made Public Service Loan Forgiveness (PSLF) harder, leading to increased scrutiny and potential garnishments for defaulted loans under his administration's later actions, notes CNN, WPR, NPR, PBS, Yahoo Finance, Student Loan Borrower Assistance, and The New York Times.
Cancellation & Forgiveness Options
You qualify for student loan forgiveness through specific federal programs like Public Service Loan Forgiveness (PSLF) for government/non-profit workers, Income-Driven Repayment (IDR) Forgiveness after 20-25 years, and targeted relief for defrauded students (Borrower Defense) or the totally and permanently disabled, with new Biden-era rules also helping long-term borrowers, those with significant balance growth, or those who didn't finish school. Eligibility hinges on having federal loans and meeting specific work, payment, or circumstance requirements.