What Would Actually Happen if We Canceled Student Loan Debt?

As we’re about 18 months away from the 2020 presidential election, various Democratic challengers to the soon-to-be Republican incumbent Donald Trump are making the rounds across the country, touting their various platforms and highlighting their competitive advantages over other candidates in an effort to sway voters. And one of the big talking points so far among Democratic hopefuls has been student loan debt — specifically, ways to eradicate it.

Currently, the United States has about $1.57 trillion worth of student loan debt on its books, the aftereffect of more students choosing to attend college combined with the rising costs of tuition. We’ve covered it before in this space, but student loan debt has the potential to be crippling to recent graduates, as they’re unable to afford homes, auto loans and many other purchases while they’re in the process of paying them off.

Massachusetts Senator and presidential hopeful Elizabeth Warren was the first Democratic candidate to unveil a plan to eliminate a large portion of the student loan debt currently on the books, and Cory Booker (D-New Jersey) and Andrew Yang (entrepreneur) have also hinted that they plan to help ease the student loan burden.

However, every initiative, no matter whether it’s pitched by Republicans or Democrats, comes with some sort of an effect — and understanding what would happen should student loan debt be eradicated is key to thinking critically on this issue. This post will take a closer look at what many economic experts see happening should these student loan forgiveness plans fall into place, as well as some of the pros and cons of such.

Before we get into some of the cause and effect of student loan debt elimination, let’s take a closer look at some of the facts and figures associated with it:

  • Of the total $1.57 trillion pot of student loan debt, more than 600,000 people carry about $200,000 or more.
  • The total $1.57 student loan debt is more than all outstanding credit card debt combined.
  • Student loan interest rates range from about 5 percent to 7.5 percent, more than an average mortgage loan.
  • And perhaps the most significant stat: Nearly 100 percent of student loan debt is government owned, so theoretically, the government has the ability to eliminate this — but it will take Congressional approval.

So what will happen if the government passes legislation to wipe out student loan debt? There’s a good chance that it’ll make up for losses by helping stimulate the economy. Experts think the increased spending power that recent graduates will possess could increase the national GDP by more than $100 billion. But any loan elimination plan would come at a cost, and the government would have to determine how to fund it.

For reference, Senator Warren’s plan is projected to cost $1.25 trillion over 10 years. You can see, however, how an ambitious plan such as the one she’s proposed could help sway undecided voters — especially young college-aged students who are expected to turn out in significant numbers for the 2020 election.

Naysayers to student loan elimination plans believe it’s an unfair system that wouldn’t benefit graduates that already paid their loans back in full. They ask if they’ll get reparations for the debts they’ve already paid. They also argue that eliminating it would be more regressive than progressive, as typically the recent graduates with the biggest student loan debts are also the ones that have the most earning potential throughout their career. Another argument against eradication is the fact that many relief programs are already in place to help students.

Currently, the Trump Administration is attempting to help manage debt by reducing interest rates, and there are signs that college costs are starting to plateau.

Regards,

Ethan Warrick
Editor
Wealth Authority


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