What are the disadvantages of student loan forgiveness?

In April, President Biden signed a extension of the moratorium on student loans which has been in place since the start of the pandemic.

Borrowers will not be required to resume payments and will not be subject to any accrued interest, until August 31 at the earliest. It offers shorter-term relief to the 43 million Americans currently burdened with federal student loans, but many members of Congress want the White House to push for student loan cancellations.

Earlier this week it was reported that President Biden was ‘positive’ about the prospect of writing off $10,000 in student loan debt per person, a move that should help close the wealth gap in the United States.

However, there are undoubtedly potential downsides to the proposals…

Widespread forgiveness could fuel inflation

Currently around 13% of Americans have student loan debtbut one problem that affects the vast majority of Americans is the high inflation rate. The financial stimulus paid to the economy in the first 18 months of the pandemic was intended to provide additional momentum, but the measures may have gone too far.

The influx of federal dollars into the economy boosted consumer purchasing power and served to drive up prices across the board. As the economy returned to normal, the consequence of this investment was a continued rise in prices, that actually harms consumers. There are fears that additional financial aid, this time in the form of student loan forgiveness, could exacerbate the problem.

Is canceling student debt the best use of funds?

While proponents of student loan forgiveness claim it would ease the burden on low-income households, for many people attending college, the investment is well worth the expense.

Neal McCluskeydirector of Cato’s Center for Educational Freedom, points out, “In 2019, the average graduate of a four-year nonprofit college who took out loans left school with only about $29,000 in debt” while “the average four-year degree holder earns six to seven figures more during their lifetime than someone “who has not witnessed superior adduction.

With this in mind, some have argued that widespread student debt forgiveness is unnecessary, as graduates often earn enough money over their lifetime to pay off the debt many times over.

Why favor student borrowers?

Critics of student loan forgiveness proposals often argue that writing off such large debt is unfair to those who have already repaid the money they borrowed.

Some Republican lawmakers have also suggested that focusing on student debt, rather than mortgages and credit cards, for example, unfairly prioritizes some borrowers. At a time when households across the country are struggling to make ends meet, spending such a sum on student loan forgiveness could alienate core groups of voters.

Comments are closed.