Updated June 15, 2022
College debt is a massive burden that affects millions of people. According to the Federal Reserve, 43% of all adults that attended college had student loan debt, owing a combined $1.5 trillion.
There is a growing demand for President Biden to forgive a significant portion of borrowers’ federal loan debt to combat the economic impact of student loan debt.
Current Student Loan Forgiveness Proposals
The typical college graduate leaves school with a significant amount of student loan debt. On average, graduates with bachelor’s degrees owe $31,800. That’s a substantial burden, and many borrowers struggle to keep up with their payments.
In the past few months, President Biden has reiterated his plan to forgive $10,000 of federal loans for each borrower.
However, some politicians disagree with that proposal, arguing that $10,000 doesn’t provide enough relief. For example, Senator Elizabeth Warren has advocated for $50,000 of loan forgiveness.
Some form of loan forgiveness seems imminent, but it will likely take several months to come to fruition. President Biden is hesitant to take executive action, so any forgiveness measures may have to be approved through Congress.
Whether $10,000 or $50,000 of student loan forgiveness occurs, the impact of such a measure would be huge. While many student loan borrowers are hopeful for loan forgiveness, it’s not a decision that everyone would support.
To understand both sides of the issue, it’s important to learn the pros and cons of forgiving student loan debt.
3 Arguments for Student Loan Forgiveness
Supporters of student loan forgiveness say it would positively impact the economy in the following ways:
1. It May Increase Consumer Spending
According to the Federal Reserve, the typical student loan payment is between $200 and $299 per month. Many graduates struggle to afford their payments; in fact, 20% of borrowers are behind.
If federal student loan forgiveness happens and $10,000 to $50,000 is discharged overnight, that will free up an average of $200 to $299 on borrowers’ budgets every month. For those living paycheck to paycheck, that’s a significant amount of money, giving them extra wiggle room in their budget.
With more money in their pockets, student loan borrowers may be more likely to spend money on non-essentials, like travel or entertainment. Increased consumer spending is good for the economy, and can help support job growth.
2. Student Loan Forgiveness Might Encourage Entrepreneurship
Entrepreneurship is important for technology and business growth, but the number of young entrepreneurs going into business for themselves has declined since 1996. Some of the decline is due to increasing student loan debt. In a 2020 survey, half of the respondents said their loans affected their ability to start a business
By eliminating borrowers’ debt, young people would have the freedom to pursue their goals and start their own businesses. As their businesses grow, they can hire workers and create new jobs.
3. More Young Borrowers Could Become Homeowners
In a 2019 survey, nearly half of millennials said that they were delaying buying a home because of their student loans. By forgiving some of their student loan debt, President Biden may be able to boost the housing market.
Student loan forgiveness would increase how much money people have each month to dedicate to a mortgage payment. And, with a decreased debt-to-income ratio, borrowers would be more likely to qualify for a home loan, raising the number of homeowners in the country.
3 Arguments Against Student Loan Forgiveness
While there are some big benefits to student loan forgiveness, there are some serious drawbacks, too:
1. It Would Cost Taxpayers Billions
Forgiving student loan balances would immediately impact borrowers, but it will have a long-term impact on taxpayers. The Brookings Institute reported that Warren’s $50,000 loan forgiveness proposal would cost taxpayers $1 trillion, while Biden’s more modest $10,000 proposal would cost $373 billion.
The cost of even the lower forgiveness amount would be higher than many federal support programs and add to the federal deficit. It would be more expensive than school lunch programs, the Special Supplemental Nutrition program for Women, Infants,and Children (WIC), and low-income energy assistance initiatives.
2. It Would Mostly Benefit Borrowers with Higher Incomes
Opponents of student loan forgiveness for all say loan forgiveness wouldn’t benefit the people that need it most. Since those with college degrees tend to earn more money than those with only a high school diploma, forgiveness may mostly affect those with higher incomes.
The median household income of people with student loan debt is $76,400, well above the national median for all households, and much higher than the federal poverty line.
3. Forgiveness Doesn’t Address the Root Cause of Education Debt
While student loan forgiveness would help millions of borrowers right now, it doesn’t address the trend of rising college costs.
In the past 30 years, the cost of a college degree has skyrocketed. Since 1980, college tuition and fees have increased by 1,200%. By contrast, inflation is up just 236%. Eliminating student loan debt doesn’t curb tuition increases, and may even contribute to future cost increases.
Is Student Loan Forgiveness a Good Idea?
Student loan forgiveness is extremely popular, and there is increasing pressure on President Biden to make it a reality for borrowers. However, it’s a controversial proposal. While it can help millions of borrowers struggling to make ends meet, it’s a short-term solution that doesn’t address the root causes of the problem. Any measure to forgive student loan debt will likely need to propose changes to the education and student loan systems to satisfy opponents.