Some who oppose student loan forgiveness view education as a private commodity that benefits the person who purchases it."
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.
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.
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.
"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."
Because credit scoring models tend to favor active accounts, once a student loan account is paid and closed, you may see a drop in your credit score, due to the resulting decrease in average age of your active credit accounts. However, this drop is typically temporary.
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.
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.
As of mid-July 2023, approximately 662,000 borrowers have qualified for forgiveness under the limited PSLF waiver.
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.
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.
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. “We certainly don't have a consumer spending problem right now,” he said.
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 loan debt cancellation is essential to the financial wellness of millions of Americans. With student debt cancellations, people will be able to pay off other debts, purchase homes, and invest in their communities, futures, and the American economy.
Even if you take out a high number of loans to pay for medical school, your overall debt burden might be low if you participate in a service program once you graduate. Due to the exceptional need for primary care physicians, loan forgiveness programs in these fields are more widely available than for other specialties.
The concern then, and for the wealthy Paris Club creditors in the current epoch, was with what economists call “moral hazard”. This is the idea that if you let people, firms or even countries get debt relief easily, they'll just spend again, and badly.
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.
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.
Student loans disappear from credit reports 7.5 years from the date they are paid in full, charged-off, or entered default. However, education debt can reappear if you dig out of default with consolidation or loan rehabilitation. Student loans can have an outsized impact on your credit score.
For a score with a range of 300 to 850, a credit score of 670 to 739 is considered good. Credit scores of 740 and above are very good while 800 and higher are excellent.
Using more of your credit card balance than usual — even if you pay on time — can reduce your score until a new, lower balance is reported the following month. Closed accounts and lower credit limits can also result in lower scores even if your payment behavior has not changed.