How Would Student Loan Cancelation In The United States Affect The Economy?

by Paul Etienne, MBA / Jan 20, 2021

There is a lot of debate about student debt cancellation in the United States. The proposals are to reduce the debt by amount either $10,000 or $30,000 or depending on the income. This decision can affect the economy of the United States. The total student loan debt is $1.5 Trillion. Some people support this decision because they think it can be an excellent initiative to boost the economy. Others argue that there can be more ways in which the country’s economy can be boosted.

Senator Elizabeth Warren proposed that the debt can be forgiven up to $10,000 per borrower. During President Joe Biden's election campaign, there was also this proposal that the loan can be forgiven altogether. If this proposal is followed, then all of the $1.5 Trillion will be gone. Maybe in the long term, this step will grow the economy, but at this time, the entire student debt can be lost. The student loan cancellation will increase the economy by around $90 Billion per year. The students whose debts are forgiven may use this saved money to buy property or cars, and through taxes, the economy can be increased.

Furthermore, it should be noted that forgiving $1.5 Trillion of debt is not similar to giving the funds of $1.5 Trillion to the United States people. The loan's total forgiveness will save the wealth of the people they have to pay for the loans, but it will cost the government the same amount. It is not equal to allotting the funds to an average household. It means that the entire average borrower will save around $200 to $300. They will withdraw from the savings and spend to buy something for themselves that will boost the country's economy in the form of taxes, but this will recover the government's loss in the long term.
Moreover, if $10,000 is forgiven for each student, most of the student's monthly payment of the loan will also be reduced. The students who have taken the loan of $10,000 or less their loan will be forgiven entirely. Most of the students will use the forgiven money to spend on something else. Loans are taken for the period of 10, 20, or 30 years. Forgiving this amount of loan can also reduce the period or monthly amount to be paid.

If the forgiven amount is $50,000, around 75% of the students will be free from paying the loan.
In addition, analyzing all these factors tells us that the entire loan's cancellation will impact the economy more than the cancellation of the partial loan amount. The cancellation of the loan will also affect the students' behavior to spend the freed amount for making more significant purchases. This is an indirect approach for boosting the economy. It is still not sure that this would be a good step for the country's economic growth. Still, President Joe Biden is under a lot of pressure to implement loan cancellation for students as he received more than 200 letters to implement this initiative.
The cancellation of loans can also benefit the government, freeing the country from racial wealth. Students who have to pay a monthly payment of the loans can help the economy to grow by spending this money. Many of the students find it hard to pay off the loans. These students have borrowed money for their schools, but some couldn't even make it to college. This leaves them to pay the loan by working other small jobs. Some of the students who took the loans to pay off the college fees are not graduated, making it hard for them to pay off the loans.

According to a survey, 3/4th of Students can't pay off the loans quickly, and in past years 38% of the loans are paid by those who earn good money. Forgiving the student loan entirely can relieve the pressure from those students who can't pay the loan, and then they can spend the money to make purchases that can provide economic growth to the country. Although letting off the loan is not similar to giving the households funds, it can still be beneficial for many families as a reasonable amount of their wealth can easily be used to purchase and pay other taxes.
Besides, cancelling student loans is not a new thing to do.

Congress also initiated this plan in 2007 under former president George Bush. As more than 200,000 borrowers applied for the forgiveness of the loan, only 34000 applications were accepted. This shows that this is not an easy process to do.
If we talk about statistics, by cancelling the student loan altogether, $90 Billion per year can be earned through the students with a $1.5 trillion prize. On the other hand, seeing other factors like a difficulty for many students in paying the loans will make it slow progress for the United States economy. Currently, it may seem that this is a bad policy, but in the long term, it can prove to be good. Students can finally use their hard-earned money in purchasing things. Even partial cancellation of loans can lead students to spend money on purchasing cars and houses.         

Until they cancel some or more of your student loans the best option is to create a campaign with us right now. Share that campaign with your friends, family, and social media to increatse your chance of taising the money needed to pay your student loans back.