The researchers' model posits that cancelling student loan debt won't cause an astronomical amount of inflation. To be specific, there would be a very modest uptick as a result, perhaps 1.8-1.9 percent. In fact, the policy of debt cancellation could boost the GDP by an average of $86 billion to $106 billion per year.
If your student loan debt is completely forgiven, your credit score may take a small, temporary hit. Additionally, while your debt relief won't be subject to federal income taxes, it may still be taxed at the state level.
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.
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.
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.
Additionally, the cancelation of these loans is fundamentally unfair. It will occur at the expense of Americans who have worked hard, repaid their debts or chosen not to go to college at all. In a country that has always rewarded hard work and personal responsibility, this move is, quite simply, unprecedented.
Pro 1: Student loan debt is slowing the national economy. Forgiveness would boost the economy, benefiting everyone. When everyone can't participate in the economy, the whole economy suffers.
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.
Con: Forgiving debt is not fair to people who have already made their payments. Forgiving student debt would be a "great gift" to graduates, said the Boston Herald editorial board — but so would having your "mortgages, car loans, and … credit card debt" forgiven.
In particular, such debt may impede economic growth in the long-run by slowing spending across certain sectors and by destabilizing personal savings typically used to survive significant financial events, such as economic recessions and retirement.
When debt burdens are lifted, student borrowers can start new businesses and in turn, create job opportunities for others. They can buy homes for the first time in their lives, pay down other debts such as their credit card bills, and have less reliance on social safety net programs.
Who has the most student loan debt by race? Black adults are more likely to have student loan debt than those in other racial or ethnic groups. They are more likely than white adults to hold student debt at every level of educational attainment.
Student debt will not be worth it in every situation. Borrowing a large sum and entering a low-paying career will either not pay off financially or take a painfully long time to do so.
One model estimates a negative ROI for partial loan forgiveness with each dollar spent on student loan forgiveness returning between 2 and 27 cents in economic activity. In order to fight higher inflation rates, experts predict that the federal reserve would need to raise interest rates by 50 to 75 basis points.
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.
Investments in the education sector, especially when free college is offered, can have an exponential impact on a country's economic structure. A workforce with a strong foundation in higher education always increases productivity, resulting in total economic prosperity.
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.
Economic and social consequences of the student loan debt crisis affect individuals the most, impacting daily lives and hopes for the future. Among low-end wage earners, education is worth significantly less. The median wage among workers with earnings among the lowest 10% is less than half the national median wage.
Some who oppose student loan forgiveness view education as a private commodity that benefits the person who purchases it."
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.
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.