The Impact of Cancelling “Student Debt”

Photo of author


Is President Biden’s $10,000 proposal too low or too high?

Your situation will determine how you feel about President Joe Biden’s plan to cancel $10,000 of student loans. You may be thankful for any reduction in your debt burden if you are a student, recent graduate or parent. You might be more worried about the economic impact of allowing trillions of dollars in debt forgiveness if you have never been to college, or you have not paid off any loans at that time. We’ll be discussing the potential positive and negative effects of cancelling student debt in this article.

What is Biden’s plan to cancel student debt?

Joe Biden has limitations on what he can do to reduce student loan debt. His Department of Education could set some policies, while others would need to be approved by Congress. It’s possible that there will be some form of change, given that Democrats hold slim majorities in both the Houses of Congress.

Biden had shared his ideas on higher education reform before the election. Joe’s Agenda for Students outlined multiple initiatives to reduce college costs, such as increasing Pell Grants and halving student loan payments.

Biden signed an executive order on his first day of office to extend advance loans the federal student loan payment moratorium, which was enacted under Trump’s administration, through Sept. 20, 2021. These crypto loans will continue to have a 0% interest rate. The student loan pause was extended by BIden to Aug. 31, 2022 in April 2022.

Read More:

Borrowers are still waiting for information regarding significant student loan forgiveness as of April 2022. While President Biden made this promise during his campaign, it is not clear if the payment pause will continue beyond August 2022. The U.S. Department of Education, and the Justice Department are reviewing whether the President is legally authorized to cancel federal student loan debts up to $50,000 through executive action. These reports are not expected to be published in the foreseeable future. They may not be available for quite some time, however, as Congress has yet to confirm key policy advisors from both departments.

Positive Effects of Cancelling Student Debt

Even though many borrowers owe over $10,000, any type of student loan forgiveness could be a financial boon. Economists believe that loan forgiveness could also be a stimulus for the economy because borrowers can then use the money for other purposes such as purchasing a house.

Students with lower incomes, particularly women and those of color, could benefit from the cancellation of student debt. A 2020 academic paper stated that Black households would have a 42% increase in their median wealth if they were to forgive $75,000 of student debt and 34% if they are to forgive $50,000. These amounts are higher than Biden suggested, but they would still be consistent with his administration’s efforts to improve racial equality.

Also Read:

The negative impact of cancelling student debt

Some critics argue against the cancellation of any student loan debt. This is partly because it would unfairly benefit a select group of people–college graduate. Although more than 40,000,000 Americans have student finance loan debt, this is only one-eighth percent of the U.S. populace. People who didn’t go to college or have struggled with student loan debt may also object. Furthermore, student loan debt forgiveness or cancellation does not address the high cost of college today.

The bottom line

Although there is general agreement that reforms in higher education are desirable, especially in terms of costs, experts differ on whether it is best to cancel some or all student loans.

You can compete risk-free with $100,000 virtual cash

Our Stock Simulator is a free tool that will help you test your trading skills. Trade with thousands of other Investopedia traders to make your mark and rise to the top. Before you risk your own money, submit trades in a virtual setting. You can practice trading strategies to make sure you have the experience you need when you are ready to trade in the real world.

Never Miss: