The issue of student loan forgiveness has become a major topic of debate in recent years as outstanding student loan debt in the United States has surpassed $1.7 trillion. With college costs rising faster than inflation, many recent graduates are saddled with tens of thousands of dollars in debt as they start their careers. This has led to calls from some policymakers and advocates to provide relief by forgiving or canceling some student loan debt.
In August 2022, President Biden announced a plan to forgive up to $10,000 in federal student loan debt for borrowers making under $125,000 per year. He also proposed forgiveness of up to $20,000 for Pell Grant recipients in the same income bracket. However, in October 2022, a federal judge in Texas struck down the plan, ruling that Biden’s unilateral action overstepped his executive authority. In October 2022, the Supreme Court took up two legal challenges to Biden’s plan after it was blocked by lower courts. The challengers argued the administration overstepped its executive powers. The Supreme Court agreed with this argument in a 6-3 ruling, finding that Biden’s plan was unlawful. The Court said that the HEROES Act, which the administration claimed authorized the plan, did not provide clear congressional authorization for a debt relief program of this scope.
The Court did not assess the policy merits of widespread student loan forgiveness. It focused narrowly on whether the Biden administration had proper legal authority for the plan under existing laws. If Congress changed the law and provided the authority, then it would not be illegal.
Following the ruling, the White House said it respected the Court’s decision. This prompted the Biden administration to develop the revised, narrower loan forgiveness plan relying on the HEROES Act that is currently moving forward. This new plan announced a revised student loan forgiveness plan in December 2022. Under the new plan, the Department of Education will provide up to $10,000 in debt relief for borrowers who earned less than $125,000 in either 2020 or 2021 and meet other eligibility criteria. The key difference is that the new policy relies on the HEROES Act of 2003, which gives the Secretary of Education authority to waive rules relating to student financial aid programs during national emergencies like COVID-19. The administration argues this law provides the legal authority for the debt cancellation that was previously called into question. On October 4th, 2023, he announced additional cancellation – $9 Billion. Payments resume this month (October).
Proponents argue wide-scale student loan forgiveness would provide relief to middle and low-income borrowers who are delaying major life decisions like buying a house due to their debt burdens. They say it could help boost consumer spending and stimulate the economy. Critics counter that it would unfairly benefit higher-income borrowers and could worsen inflation. Some have raised concerns about the cost and fairness of forgiving debt that was voluntarily taken on. The debate is likely to continue as long as rising college costs saddle students with massive debt burdens.
ALL vs Partial Forgiveness
One thing that is tricky about this topic is that there is hardly any advocacy for forgiving ALL student loan debt. Some people with well paying jobs should arguably still have to repay their loans. And, if we forgive the total value of all the loans, then it will probably be substantially inflationary. The responses to the inflation argument assume the loans are partially forgiven.
These are the main arguments in favor of the Pro.
Economic stimulus. Widespread student loan forgiveness would put more money back in the hands of borrowers to spend and stimulate the economy. Graduates with student debt often delay major purchases like cars or homes and forgiving loans could allow them to put more disposable income towards consumer spending. This argument maintains loan forgiveness would provide a short-term economic boost, which is often called a “stimulus.”
Reduced inequality. Student debt exacerbates existing racial and socioeconomic disparities. Wealthier students carry less debt, while Black students face higher debt burdens. Across-the-board forgiveness could help close these gaps and promote equity.
Proponents also argue forgiving student loans would help boost social mobility. College education is seen as a path to the middle class. But high debt burdens can significantly hinder graduates, especially those from low-income backgrounds. Forgiving loans could help create more equitable economic outcomes and allow more people to fully benefit from higher education.
Forgiveness could also have a large, societal wide effect. The weight of monthly loan payments can deter graduates from entering lower-paying public interest fields. Mass forgiveness could incentivize careers in underserved areas like teaching or social work.
On a related note, It would allow more people to follow their dreams and passions. Excessive student debt forces many to prioritize higher-paying jobs over careers aligned with their interests and talents. Mass forgiveness would enable more idealistic career paths.
Health. High student debt is linked to poorer physical and mental health outcomes. Forgiving loans could lift this financial burden and its associated health effects like stress and anxiety. Mass loan forgiveness could alleviate major stress, anxiety and depression linked to student debt that impair borrowers’ overall wellbeing and productivity.
Strengthening the middle class. Middle class households have taken on more student debt over time. Forgiveness could bolster their financial stability and ability to spend, saving them from potential downward economic mobility.
Boosting entrepreneurship. Indebted graduates may be unable to take on the risks of starting a business. Forgiving student loans could enable more entrepreneurship and innovation.
Fixing a broken system. Supporters contend blanket loan forgiveness is justified because the higher education system is fundamentally flawed. The cost of college has skyrocketed while wages remain stagnant, saddling generations with massive debts. Across-the-board forgiveness is seen as a needed remedy for decades of policy failure in higher education funding and student lending.
Preventing defaults. Total student loan forgiveness could help prevent future defaults, advocates claim. Defaults can ruin borrowers’ credit scores and result in penalties. Mass loan cancellation would provide relief to those at high risk of delinquency and default, helping them avoid long-term financial damage.
College completion rates. The prospect of debt forgiveness could encourage some to complete their degrees instead of dropping out due to financial pressure, allowing more Americans to gain the full benefits of higher education. On the flip side, it could incentivize higher college enrollment rates, leading to a more educated populace.
National security. Forgiving loans could expand economic opportunities for millions of Americans, making them less vulnerable to security risks driven by financial desperation. A more financially stable populace strengthens the country. There is also strong evidence that forgiving loans will boost national security.
It could help revitalize rural communities. Highly educated young people often leave rural areas due to limited job prospects and difficulty paying loans. Forgiveness could allow more college grads to return home and contribute to their communities.
It may increase civic participation. Younger Americans weighed down by student debt are less likely to vote, volunteer and be politically engaged. Removing this financial constraint could boost civic involvement.
It can be viewed as an investment in future generations. Making education more affordable and accessible for today’s students ultimately benefits their lifelong earning potential and future contributions to the economy and society. There arguably exists a moral obligation to help future generations because the decisions and actions taken today inevitably shape the world they will inherit. Drawing from principles of justice, equity, and stewardship, it’s argued that just as previous generations paved the way for current societal benefits and advancements, it’s incumbent upon the present generation to ensure a sustainable, just, and prosperous future. By considering the long-term consequences of today’s choices, society acknowledges a duty to protect and enhance the well-being of those who come after, asserting the intrinsic value of every generation and upholding a continuum of collective responsibility.
Career choice. Reduced debt could allow graduates to change careers more freely without financial constraints. It may enable more individuals to pursue creative careers in the arts and humanities that enrich society culturally. As we move into an AI World, fundamental questions related to what it means to be human and what role humans play in society will become essential and even existential.
Donations. Freeing up income could promote philanthropic donations and investment in community programs.
Birth rates. Removing debt burdens could reverse declining birth rates as graduates start families. High college debt can lead to a lower birth rate due to its influence on individuals’ financial decisions and life milestones. Those burdened with significant student loans often prioritize debt repayment over other major financial commitments, including the considerable expenses associated with starting a family. This financial strain can also delay key life events such as homeownership, which many view as a precursor or concurrent step to having children. The combined effect of these financial pressures and delayed milestones can result in couples postponing or reducing the number of children they have, contributing to a decline in birth rates.
Soft power. Student loan forgiveness could increase U.S. soft power, which refers to the ability to influence other nations through the appeal of American culture, ideals and policies rather than coercion, by demonstrating America’s commitment to economic opportunity and education, serving as an example of effective policy intervention that other countries may follow, reinforcing U.S. leadership in promoting innovation critical to the knowledge economy, boosting America’s image abroad as a compassionate nation of fairness and second chances, and fostering goodwill among foreign students who study in America and return home as ambassadors of its promise and values.
Politics. Debt forgiveness could boost approval and support for the current administration and allow it to secure (for example) aid to the Ukraine. Such a move would be broadly popular across younger voters and could build goodwill and political capital for leaders backing the policy.
It could even alter the outcome of the 2024 election. The policy could win over younger voters and secure a supportive base for future elections.
There are a number of arguments against student loan forgiveness.
Forgiving all loans could benefit the wealthy. Loan cancellation would help high-income graduates with large debt burdens, wasting aid on those who need it least. It’s also a regressive policy – a policy that disproportionately benefits the wealthy. The poorest Americans would see little gain because they have not attended college and do not have any student loans.
Fairness. On a broader level it would be unfair for taxpayers who did not attend college or already paid off their loans to foot the bill. Many never had the advantage of higher education.
Moral hazard. Across-the-board forgiveness could incentivize future students to borrow recklessly, expecting loans will just be canceled later. This sets a poor precedent.
Inflation risk. Adding billions in consumer spending power could further increase demand and inflation which is already high. This could negate intended stimulus effects, as people would have more money to spend but everything would be more expensive. As noted earlier, this is even more likely if all loans would be forgiven, which most Pro answers will not assume. Most of the Pro responses to inflation come from studies that advocate partial forgiveness and would have a less dramatic stimulus effect.
Inflation, particularly when rapid and unanticipated, can introduce several distortions and challenges to an economy. First, it erodes the purchasing power of money, meaning that the same amount of money buys fewer goods and services over time. This dynamic can distort consumer and business spending behavior, as anticipation of higher future prices may lead to accelerated purchases, further stoking demand and prices. Savings, a fundamental pillar for both individual security and capital investment, are adversely impacted as the real value of stored money diminishes over time. Additionally, inflation often results in higher interest rates, as lenders seek compensation for the eroded purchasing power, making borrowing more expensive for both consumers and businesses and potentially stifling investment and economic growth.
From the perspective of poverty, inflation can be particularly devastating. The rising costs of goods and services disproportionately affect those at the lower end of the income spectrum, as even minor price hikes in essential items can significantly impact their already tight budgets. Often, wages, especially for low-income workers, do not adjust or keep pace with escalating prices, further eroding their real income. High inflation can also create an environment of economic uncertainty, potentially slowing business investments and job creation, which can be detrimental to the already vulnerable employment prospects of the poor. Furthermore, as inflation pushes up interest rates, access to affordable credit becomes even more challenging for impoverished individuals, limiting their opportunities for educational or entrepreneurial ventures that could elevate them out of poverty
National debt. The over $1.7 trillion cost of widespread forgiveness would expand budget deficits unless offset by spending cuts or tax hikes. Significantly increasing the national debt can have multiple negative ramifications on a country’s economy. A large and growing debt means that the government has to allocate a bigger portion of its budget to service this debt, often leading to reduced investment in other critical areas or the need to raise taxes. As the debt grows, there might be concerns about the country’s ability to repay it. This can lead to higher interest rates as lenders demand a higher premium for the increased risk. Additionally, if a country continuously prints money to finance its debt, it can lead to inflation. Inflation can erode purchasing power, causing the value of the country’s currency, in this case, the dollar, to decline. A weakened dollar in the global market can result in decreased confidence in its stability, making it less attractive as a reserve currency.
A strong dollar is essential for several reasons, including national security. A robust dollar means that it’s viewed as a stable and reliable currency, making it a favored reserve currency worldwide. This status allows the U.S. to borrow money at lower rates and gives the country significant leverage in international financial systems. From a national security perspective, economic strength is often intertwined with military and diplomatic power. If the dollar weakens, the U.S. might face higher costs for goods and services, including those related to defense. Additionally, economic instability, potentially caused by a devalued dollar, can lead to geopolitical instability, making diplomatic relations more challenging and potentially increasing the risk of conflicts. A strong dollar, therefore, is not just a matter of economic prestige, but a cornerstone of national security, ensuring the country’s continued influence and safety in a complex global landscape.
College costs. Removing repayment accountability may enable colleges to increase tuition further without concern for graduates’ ability to repay debts. The notion that student loan forgiveness might lead to increased tuition stems from theories about induced demand and the evolving dynamics of the higher education market. When student loans are forgiven or when there’s an anticipation of future forgiveness, more students might be inclined to borrow. This could give educational institutions the impression that students can handle higher tuition costs, prompting them to raise fees. Moreover, if students expect their debts to be alleviated, they could become less price-sensitive regarding tuition. As a result, institutions might feel there’s less incentive to maintain or reduce tuition costs. Furthermore, with potentially more funds from raised tuition, colleges might prioritize non-academic amenities over core academic quality, sparking a competitive race based on facilities rather than educational excellence.
Such a trend could have detrimental effects on the higher education landscape and the broader economy. Continually rising tuition could make higher education increasingly inaccessible for many, particularly those from disadvantaged backgrounds. If governments shoulder the responsibility of loan forgiveness, taxpayers would bear the brunt of these financial decisions. Additionally, if colleges shift their focus from academic rigor to other amenities, the intrinsic value of education could diminish, with graduates potentially lacking the skills traditionally associated with their degrees. Over time, the combination of soaring tuition and accumulating student debt, even with periodic forgiveness, might introduce elements of economic uncertainty, affecting credit markets and public confidence.
Personal responsibility. Borrowers made a choice to take out loans and should uphold their obligations. Forgiveness absolves them of personal responsibility. Personal responsibility is vital because it underpins societal trust, ensures orderly societal functioning, promotes personal growth, and ensures efficient resource management.
Limited impact. A one-time cancellation does not address the underlying college affordability issues. Costs would continue rising and new graduates would accumulate debt.
Rural brain drain. If loan forgiveness helps more educated Americans cluster in cities. Rural brain drain, the migration of educated individuals from rural to urban areas, poses significant challenges for the communities left behind. Economic stagnation becomes prevalent as these areas grapple with the loss of their skilled workforce, making business growth and modernization challenging. Critical services, such as healthcare and education, are often reduced due to the departure of professionals, leading to compromised quality and accessibility. The aging of the population exacerbates pressures on social systems, while cultural traditions risk erosion as younger generations seek opportunities elsewhere. Furthermore, potential local leaders who could instigate positive change are lost to urban allure. Such departures not only weaken the social fabric of rural communities but also challenge the capacity and resources of urban areas absorbing the influx.
Political divisiveness. Such a costly and far-reaching proposal with no bipartisan compromise could further alienate moderates and inflame partisan tensions.
Eligibility concerns. Verifying borrower eligibility and preventing fraud for a program of this scale would carry massive administrative burdens. Note: This does not apply to cancellation of all debate, as everyone would be eligible.