The Economic Impact of Student Loan Forgiveness
By Julia Porter | October 27, 2022
The discussion surrounding student debt relief has been an ever-growing topic in current news. The recent announcement of President Joe Biden’s student loan plan, debt relief is atopic at the forefront of many Americans' minds. The Biden administration announced that they will cancel up to $10,000 in student debt for borrowers making less than $125,000 per year. Likewise, for low-income students who received a pell grant, they will cancel up to $20,000 in student loans. This announcement is expected to relieve the loans of roughly 15 million borrowers. Upon hearing this recent announcement, countless Americans have felt a wave of relief. Releasing the burden of student loan debt from the shoulders of millions is life-changing. Countless Americans have put their lives on hold waiting to pay off loans taken out years, or even decades ago.
While the plan to forgive student debt will relieve financial stress for millions of borrowers, the announcement coincides with a plan to remove the freeze on federal student debt payments. Many Americans who haven’t been required to make student loan payments since early March 2020 will have to begin doing so in January 2023.
The result of these two announcements is predicted by economists to effectively cancel each other out. Many Americans worry that forgiving student debt will add to the ever-growing inflation in the United States. However, economists believe that this action will have little effect on the economy as a whole due to the new student debt payments that will occur. Mark Zandi, chief economist for Moody’s Analytics reported to CNN that“The end of the moratorium will weigh on growth and inflation, while the debt forgiveness will support growth and inflation”. Zandi’s prediction is further supported by Moody’s estimation of GDP, which reports that by 2023, the combined impact will lessen real GDP by 0.05 percentage points and unemployment by 0.02 percent. Inflation will also decrease by an estimated 0.03 percent due to the cancelation of student debt. Although these estimates are a step in the right direction for the economy, the numbers may prove insignificant due to their size and have little effect on the economy.
Overall, the large-scale macroeconomic impact of canceling student loan debt is minuscule. There are no major consequences or benefits predicted. The combination of loan forgiveness with the plan to lift the freeze on debt payments allows the fear of increasing inflation to be put to rest. The forgiveness of student loan debt will be felt on a more individual level. The average student graduates with nearly $25,000 in debt, which can be difficult to pay off immediately. This debt can collect interest quickly, adding up over time. Biden’s plan to forgive up to $10,000 in loans makes a significant impact on the lives of millions across the country. This opportunity allows many to continue working towards a life that has been put off due to financial stress.
Edited by Zachary Elias