Is Cancelling Student Loans A Good Idea?

Should your student loans get cancelled?

Here’s what you need to know.

Student Loans

For some, cancelling student loans is the panacea to stimulate the economy and save a generation of borrowers from financial ruin. For others, cancelling student loan debt is one big, misdirected wealth transfer and the poster child for taxpayer spending. So, is cancelling student loans a good idea? Let’s break down the arguments on both sides so you’re fully informed and can decide for yourself.


Cancel Student Loans: Pros

There are many reasons to cancel student loans:

  • Financial Freedom: create financial freedom so borrowers can buy a home, save for retirement, launch a business and start a family
  • Economic Stimulus: stimulate the economy through GDP growth and job creation
  • Reduce Inequality: reduce social, economic and racial disparity and inequality
  • Reduce Depression: reduce anxiety and depression from growing debt
  • Fairness: we’ve “bailed out” billionaires and corporations, so let’s provide financial relief for everyone else too

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Cancel Student Loans: Cons

There are many reasons not to cancel student loans:

  • Exclusionary: There are more than 200 million adult Americans who don’t have student loans compared with 45 millions who do.
  • Cost: If 40 million Americans each get $10,000 of student loan debt cancellation, student loan debt cancellation could cost $400 billion.
  • Wealth Transfer: Federal taxpayers would pay to cancel student loans. Student loans don’t just “get cancelled.”
  • Poorly Targeted: Student loan debt cancellation disproportionately benefits graduate school students, who earn higher income.
  • Fairness: It’s unfair to past borrowers who worked hard and struggled financially to pay off student loan debt.
  • Ineffective: Student loan debt cancellation is short-term thinking that doesn’t address the underlying issue: the cost of higher education.
  • No Stimulus: Student loan debt cancellation doesn’t stimulate the economy. The short-term impact to GDP is not the amount of student loan forgiveness, but rather the monthly student loan payments—so the impact is over 10 or more years.
  • Other Economic Priorities: Second stimulus checks, unemployment benefits, education funding and small business loans may be better ways to provide financial relief.

Cancel student loans for every borrower?

There are two main considerations to cancel student loans: who gets student loans forgiveness and how much student loan forgiveness. Opponents are focused on both variables. The amount of student loan forgiveness is a question of overall cost, and what Congress or the president is willing to spend. Who qualifies for student loan forgiveness is a more pressing question because it goes toward effective public policy and fairness, among other considerations. According to the Congressional Budget Office, the growth in student loan debt has been driven largely by borrowers in graduate school. (Borrowers in for-profit education programs also have driven the growth in student loan borrowing). On average, having a graduate degree such as a law degree, medical degree or MBA leads to higher income than an undergraduate degree alone. Borrowers in these graduate programs often leave school with more than $100,000 of student loan debt, and in the case of dental school, for example, hundreds of thousands of dollars of student loan debt. So, forgiving student loans for every borrower means wealthier borrowers would benefit disproportionately. This doesn’t mean student loans shouldn’t be cancelled for everyone else, but it begs the question of what limitations—income, degree type or otherwise—policymakers should consider when forming a policy potentially to cancel student loans.


Not everyone will qualify to cancel student loans

“Cancel student loans for every borrower” has a populist appeal, particularly for younger student loan borrowers who are drowning in student loan debt. However, there has been a growing policy shift toward limiting who qualifies for student loan forgiveness. This implies that not everyone will qualify for student loan forgiveness. For example:

Therefore, the evolution of student loan debt cancellation proposals have become narrower over the past two years. It’s possible that policymakers will narrow eligibility requirements further. For example, President-Elect Joe Biden wants to cancel $10,000 of student loans in response to the Covid-19 pandemic. To appease Republicans and other skeptics of wide-scale student loan forgiveness, Congress may need to target student loan debt cancellation only to borrowers who are struggling financially, including those who are unemployed or economically distressed such as defined in the Heroes Act.


How to get student loan forgiveness

If Congress or the president doesn’t cancel student loans, there’s still a way to get student loan forgiveness. It’s called an income-driven repayment plan. If you’re struggling to pay off student loans, income-driven repayment plans can lower your federal student loan payments to as low as $0 per month. That’s not a typo. Biden’s student loan plan focused on revising income-driven repayment plans and making them a cornerstone of student loan repayment. Income-driven repayment plans currently offer federal student loan forgiveness after 20 years (undergraduate student loans) or 25 years (graduate student loans), and Biden wants the amount of student loan forgiveness to be tax-free. Opponents of wide-scale student loan debt cancellation say income-driven repayment plans are an existing solution available to all federal borrowers, especially those who are struggling to pay student loans. The counterargument is that it takes 20 to 25 years to get student loan forgiveness, and the borrower may be liable for taxes on the amount forgiven.


Pay Off Student Loans

Will your student loans get cancelled? The short answer is: not now. The next stimulus package will not include student loan debt cancellation. It may include second stimulus checks and unemployment insurance, but Congress won’t include student loan forgiveness now. That could change next year, but there is no guarantee, despite the anticipation about student loan forgiveness. In the meantime, take control of your student loans now. What’s the best way to pay off student loans? Here are 3 ways to pay off student loans now, all of which have no fees:


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