What happens if we ‘forgive’ student loan debt?


Photo via j.stavrogin under the Creative Commons License

Forgiving student load debt could be helpful or harmful depending on how you look at it.

Since President Biden came into office, he has proposed to forgive $10,000 per borrower. Now short term thinking, yes that is a huge relief to people who are behind in paying; however, if there is too much relieved, there would be relief to people who don’t need it, and it wouldn’t be fair for those who have already paid theirs off.

But what would happen if the $1.6 trillion America is under, was a thing of the past?

Let’s look at the statistics: according to a Forbes article, there have been over 2 million people that have been paying off student loans for 20 or so years. There are 45 million people in the U.S that are student loan borrowers, but there have been only 32 people to receive cancellation due to a specific payment plan.

So for one it would reduce the wealth gap between the middle class and the upper class people. Small businesses would flourish with the kind of stimulus it would bring and long-term wise, the rate of house-buying would increase as well. Starting families would be no big deal for future generations since the weight of student debt isn’t taking up all of their money.

However, there are also dangers with forgiving student debt. If people know that their student debt would be forgiven, now there wouldn’t be any more reason to go to college. Basically saying, people know that they would go to school almost for free. There is also the possibility of people who have already borrowed student loans, to take out more, but that future debt wouldn’t be forgiven. If all that 1.6 trillion were to be forgiven, the government would lose around $85 billion as well.

That 2 million people that have been paying for 20 years were under 1 out 4 of the types of payment plans. The first payment plan is the Income-Contingent Repayment or the ICR, then there is the Revised Pay As You Earn or the REPAYE, then the Income-Based Repayment or the IBR and finally the Pay As You Earn or the PAYE. The thing with this is that after the 20 years of paying, the rest that you owe would be forgiven. That’s apparently not the case anymore.

In summary, even though paying off American student loans debt and having advantages that could do good for the economy, there are better ways to pay them off in a reasonable amount of time.