The Pros and Cons of Student Loan Forgiveness

Student loan forgiveness is a big topic of debate in America. Student loans are a large financial burden for many borrowers. There are rising calls for wide-scale student loan forgiveness. But forgiveness also faces criticism and opposition. In this article, we will dive deep into the pros and cons of student loan forgiveness.

What is Student Loan Forgiveness?

Student loan forgiveness cancels some or all remaining student loan debt. Borrowers are relieved from having to repay their loans. The cost falls on the government or private lenders instead. There are a few main types of student loan forgiveness programs:

  • Targeted public service loan forgiveness for teachers, government workers, nurses, etc.
  • Income-driven repayment plans that forgive debt after 20-25 years of payments.
  • Blanket forgiveness proposals to cancel $10,000 or more per borrower.
  • Borrower defense to repayment discharge due to school misconduct.
  • Disability discharge for borrowers unable to work due to disability.
  • Death discharge when a borrower dies to relieve co-signers.
  • Employer repayment assistance programs.
  • Bankruptcy discharge in rare cases of severe financial distress.

Most debate focuses on wide-scale forgiveness rather than existing targeted programs. Blanket forgiveness could cost hundreds of billions or more.

Pros of Student Loan Forgiveness:

More Money and Opportunity for Borrowers

Without student loans, borrowers will have more available income each month. This money can be put toward buying a home, buying a car, investing, starting a business, saving for retirement, or other goals. Student loans delay major financial milestones for many borrowers. Forgiveness would remove this financial barrier.

Borrowers spend years or decades paying back student loans. Their income drops by hundreds or thousands of dollars every year. Forgiveness would allow borrowers financial flexibility and freedom. They could use their incomes to advance careers, relocate, get additional training, start families, and more.

Stimulate the Broader Economy

If 43 million Americans with student loans had more discretionary income, they would likely spend much of it. This extra consumer spending across all borrowers would stimulate the entire economy. More demand helps businesses to grow and create new jobs.

Economists estimate that widespread student loan forgiveness could increase GDP by $100 billion or more per year. Targeted forgiveness for lower-income borrowers yields the greatest economic impact per dollar spent. Blanket forgiveness still pumps billions into the economy.

Relief for Struggling and Distressed Borrowers

While not all borrowers struggle to repay student loans, they are a heavy burden for some. Monthly payments account for 20-30% or more of their take-home pay. This leaves little income for other necessities like rent, transportation, and healthcare. Forgiveness brings substantial financial relief to truly distressed borrowers. It may allow them to pay down other debts and avoid bankruptcy.

Those making less than $25,000 from student loans are at the highest risk of default. Forgiveness targeted at lower incomes can break the cycle of unmanageable debt. More income eases hardship and helps borrowers get back on their feet financially.

More Access to Homeownership

High student loan balances make it harder for borrowers to qualify for mortgages. Lenders factor in debt-to-income ratios. Forgiveness strengthens borrowing power to purchase homes.

Increasing low and moderate-income homeownership is also a goal of many policymakers. If more borrowers can qualify for mortgages, it expands access to homeownership and builds household wealth. Home equity becomes an asset that can appreciate and be tapped in emergencies.

Reduce Stress, Anxiety, and Bankruptcy

For borrowers barely keeping up with payments, student debt is a huge stressor. It weighs on mental health and well-being. Forgiveness removes this psychological weight and eases anxiety. It offers peace of mind.

Research shows student loans are linked to higher rates of depression and lower psychological health. Forgiveness may benefit overall public health and happiness.

It can also offset a rise in personal bankruptcies. Distressed borrowers get a fresh start financially.

More Entrepreneurship and Innovation

Student loans make it riskier for graduates to start new businesses. Most must make payments right away, reducing funds available to launch ventures. The debt also hurts small business financing options.

Forgiveness could enable more entrepreneurship and innovation. New businesses spur job growth and keep the economy dynamic. College grads may be more willing to take business risks without student debt burdens. It creates public benefits from innovation.

Cons of Student Loan Forgiveness:

Large Upfront Costs for Taxpayers

The biggest criticism of loan forgiveness is its sheer cost. Forgiving $10,000 per borrower costs around $370 billion. Forgiveness of $50,000 per borrower approaches $1 trillion. Blanket forgiveness of all debt could cost $1.5 trillion or more.

Taxpayers bear these costs through higher deficits and debt. Increased federal spending may eventually require budget cuts elsewhere or tax hikes. Adding trillions in student debt to the national debt is concerning.

However, costs can be offset by capturing the economic growth benefits. Treasury revenue rises from increased consumer spending, incomes, and job creation. The net budget impact depends on the program structure.

Moral Hazard – Incentivizes Future Borrowing

By canceling loans, forgiveness could enable colleges to raise tuition further and students to over-borrow. If borrowers think loans will just be forgiven later, it removes their incentive to borrow responsibly. Lenders may also loosen credit standards.

This moral hazard wastes taxpayer money on unnecessary or excessive borrowing. Without accountability, costs spiral. So, forgiveness may enable the student debt problem to worsen over time.

Unclear Impact on College Accessibility

Supporters claim loan forgiveness will make college more accessible and affordable. But the impact is uncertain. If students simply expect more forgiveness in the future, colleges can keep raising costs.

Forgiveness alone does nothing to rein in tuition inflation or hold colleges accountable. Other reforms are needed, like Pell grants, income share agreements, price transparency rules, and accountability for student outcomes.

May Reward Irrational Borrowing

Forgiveness bails out borrowers regardless of whether loans improved income andwere a wise investment. Is it fair to reward unwise borrowing while those who avoided debt or paid it off receive no benefit?

Target forgiveness based on income, degree completion, and accountability for colleges may be more equitable.

Wealthier Borrowers Benefit More

Those with the highest student debt balances tend to have graduate and professional degrees and higher incomes. Blanket forgiveness gives the largest benefit to doctors, lawyers, and MBAs. Is this progressive?

Forgiveness focused on lower-income borrowers better targets benefits based on financial need. Blanket forgiveness is regressive by giving the most dollars to those earning the most.

Weakens Incentive to Repay Loans

Broad forgiveness may incentivize intentional nonpayment of debt. Why make payments if there is a chance loans get canceled? Strategic defaults rise.

Minimizing rewards for nonpayment and targeting distressed borrowers minimizes this risk. Clear repayment requirements and fraud prevention also help.

Penalizes Responsible Repayment

What about borrowers who worked hard to pay off their loans or avoid debt altogether? Forgiveness rewards debt, while responsible repayment gets no benefit.

Adding refundability may compensate repaid borrowers. But it further raises program costs. And it still disadvantages those who sacrificed to minimize debt.

Limited Impact on Racial Wealth Gap

Because black students, on average, carry less student debt compared to whites, blanket forgiveness gives more dollars to white borrowers. It has a limited impact on closing racial income and wealth gaps.

Targeting based on both race and income may better address inequity. But it faces legal barriers. Outreach, simpler applications, and customized assistance also help.

FAQ For Student Loan Forgiveness

How much student loan debt could be forgiven?

Over $1.7 trillion in federal student loan debt is currently outstanding. Forgiveness proposals range from $10,000 per borrower to $50,000 per borrower for all debt cancellations.

Who qualifies for student loan forgiveness?

It depends on the type of forgiveness. Teachers, government workers, nurses, and nonprofit employees qualify for existing public service programs. Blanket forgiveness proposals often set income limits.

Does student loan forgiveness increase my taxes?

Potentially yes. Canceled debt is treated as taxable income. However, some programs exempt it from taxes. Without an exclusion, forgiveness may result in a large tax bill.

Are private student loans eligible for forgiveness?

Federal student loans are eligible for government and nonprofit forgiveness programs. Private student loans have almost no forgiveness options. Refinancing may help reduce payments.

Can student loan forgiveness be reversed or clawed back?

Once authorized and completed, student loan discharges cannot be reversed later. However, eligibility rules must be met fully, and any fraud could invalidate forgiveness.

What are the main existing student loan forgiveness programs?

The main programs currently are Public Service Loan Forgiveness, income-driven repayment plans with forgiveness after 20-25 years, disability discharge, and borrower defense discharge.


Student loan forgiveness offers significant potential benefits but also raises valid concerns and criticisms. The foremost issue is the substantial taxpayer cost of forgiving hundreds of billions or trillions in student debt. The public bears this cost through higher federal deficits and debt. However, this cost can be partly offset by capturing the economic growth and job creation impacts of putting more money in the hands of 43 million borrowers. Careful program design is needed to maximize the stimulative effects.

Targeted loan forgiveness focused on lower-income borrowers yields the greatest economic and social benefits per dollar spent. Blanket across-the-board forgiveness is far more costly and regressive. Means-testing ensures benefits are based on financial need rather than simply rewarding those holding the most debt.

There are also risks like colleges further inflating tuition and students over-borrowing. Guardrails must be enacted to maintain accountability and prevent moral hazard. Other reforms are imperative, like making colleges share repayment risk through income-share agreements. Relying solely on loan cancellation is insufficient to control college costs.

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