‘Why do we need student loan debt cancellation?’ and other FAQs - Public Citizen (2024)

By Candace Milner, J.D.

Americans are being forced to choose between meeting their basic needs and paying back debt. Debt accrued from medical bills, predatory lending practices, and student loans are crippling American families while lining the pockets of greedy CEOs and billionaires. During his campaign, President Biden made a promise to bring Americans economic relief through widespread student debt cancellation. He followed through, though his impressive attempt to cancel debt became temporary when it was struck down by the Supreme Court in a disappointing decision. Still, the Biden administration is working to find ways to deliver on their promise. Through a focus on discharging debt accrued from fraudulent for-profit schools, expanding income-driven repayment plans, and extending cancellation to borrowers who have been in repayment for decades, the administration has provided relief to millions. Despite the many sources supporting the boost that student debt cancellation will give communities and families, many still have questions about the merit and specifics of cancellation. Here are some answers to those questions.

Why do we need student loan debt cancellation?

Student loan debt cancellation is essential to the financial wellness of millions of Americans. With student debt cancellations, people will be able to pay off other debts, purchase homes, and invest in their communities, futures, and the American economy. College is grossly unaffordable, and loans are a predatory ‘fix’ to that larger problem. By canceling student loans, we can double down on our commitment to education while moving forward to a path where everyone has affordable access to college that meets their needs.

Wouldn’t you be able to pay back your student loan debt if you went to college?

While there was a time when if you earned a four-year degree, you were likely to be able to work your way through college or pay it off while still reaching other financial goals like home ownership, this is unfortunately no longer the case. Inflation has risen at a rate that salaries have not caught up to. This means many jobs that require a four-year degree do not come with a salary that can pay for said degree. Moreover, students are diverse, as are their backgrounds and economic needs. Depending on family size, status, and other life events, relatively quick repayment just may not be feasible.

Is student loan debt cancellation real?

Yes! We have systems in place that cancel loans for people based on careers or other circ*mstances. This cancelation is critical to their livelihood and all but a drop in the bucket financially. Cancellation can and should be a widespread reality for all borrowers.

Is student loan debt cancellation expensive?

Not as expensive as the estimated $197 billion the student loan program has cost the government. Critics of cancellation claim that taxpayers will be bailing out borrowers of their debt. This statement is misleading at best. First, borrowers ARE taxpayers. In addition, a GAO study found that direct student loan collection costs the government $197 billion per year. The same program only brings in $114 billion, leaving a small difference in cost to the government. So, in totality, cancellation will save taxpayers and the government money while boosting the economy and allowing families to keep more of their hard-earned income to meet their needs.

Is student loan debt cancellation happening?

Yes. It has happened to borrowers who were scammed by the schools they attended, borrowers on permanent disability, and borrowers who have made 20 years or more of payments. Cancellation can and should be extended to all borrowers. There is currently a negotiated rulemaking for Higher Education 2023-2024 process underway to expand cancellation to more borrowers and deliver more Americans economic relief through student debt cancellation.

What is the negotiated rulemaking process?

Typically, executive agencies like the Department of Education develop proposed rules without public input and publish them for comment by the public before finalizing said rules. In negotiated rulemaking, agencies convene a diverse group of stakeholders that works with the agency to develop the proposed rule. These meetings are facilitated by a neutral third party and are used to quicken the process by creating consensus before the rule is proposed. More information on negotiated rulemaking can be found on the Department of Education website.

Is student loan debt cancellation a good idea?

Student loan debt cancellation is both good and necessary! The burden of student debt does not exist in a vacuum. Debt has multigenerational consequences and impacts the mental health and retirement plans of borrowers. Cancellation followed by intentional investments to make higher education affordable is good for the overall education and wealth of the nation. The housing market, annual GDP, job creation, and entrepreneurship could all benefit from student debt cancellation. Cancellation creates pathways for borrowers to make more intentional investments in communities and will enable our economy to thrive. Not only is cancellation a great idea, we all suffer if we continue to let millions of Americans suffocate under the weight of student loan debt.

‘Why do we need student loan debt cancellation?’ and other FAQs - Public Citizen (2024)


Why do we need student loan forgiveness? ›

Three of the major arguments in favor of broad student debt cancellation are: Student loan debt slows new business growth and limits consumer spending. Broad student loan debt forgiveness may help boost the national economy by making it more affordable for borrowers to participate in it.

Why we should cancel all student debt? ›

Cancellation would promote college affordability, access, and completion. Student debt is not an individual burden but one that strains entire families. Many borrowers take on student loans while also caring for their parents.

Who benefits from student loan cancellation? ›

Borrowers enrolled in SAVE who have made at least 10 years of monthly payments and originally took out $12,000 or less for undergraduate or graduate postsecondary studies are eligible for forgiveness. For every $1,000 borrowed above $12,000, a borrower can receive forgiveness after an additional year of payments.

Why is the student loan crisis important? ›

It's the result of a decades-long explosion in borrowing coupled with soaring education costs. The Federal Reserve data shows people under the age of 30 are more likely to have student loan debt compared with older adults – underscoring the crippling burden on another generation of Americans.

Why don't people want student loan forgiveness? ›

4. Student loan cancellation could cost $400 billion. The federal government has spent trillions of dollars in financial stimulus to combat the Covid-19 pandemic. Biden proposed a $1.9 trillion stimulus package that includes stimulus checks and unemployment insurance.

Why is student loan forgiveness not fair? ›

Myth: Student loan forgiveness is the fair way to help Americans escape massive amounts of debt. Fact: Borrowers signed on the dotted line for their loans. Erasing these loans does not teach borrowers to manage their debts. Moreover, the cancelation is an insult to those who diligently paid off their loans.

What are the cons of student loan forgiveness? ›

5 Cons of Student Loan Forgiveness
  • It Takes a Long Time. Even if you qualify for federal loan forgiveness, it can take a long time for your loans to be eliminated. ...
  • Forgiveness Isn't Guaranteed. ...
  • Your Debt Could Increase While You Wait. ...
  • You Could Lose Out On Higher Salaries. ...
  • You Might Be Taxed.
Apr 28, 2022

Is cancellation of debt a good thing? ›

Debt forgiveness may negatively affect credit scores, making it challenging to obtain future loans or credit. Forgiven debt of more than $600 may be considered taxable income, potentially resulting in a hefty tax bill.

Why is student loan debt bad for the economy? ›

Student loan debt can prevent you from making major purchases like a home or a car. An economy may see fewer new businesses when there is more student loan debt. Student loan debt also limits consumer spending. Economic recovery can be more difficult when there are many people carrying student loan debt.

Why would cancelling the debt lead to moral hazard for future students? ›

Another concern of forgiving student debt is “moral hazard,” the idea that students might make riskier choices if they think their debt will end up being forgiven, Jones said. See more from Marketplace.

Who is impacted by student loan forgiveness and how? ›

The plan would forgive up to $10,000 in federal student debt for individuals making less than $125,000 a year and married couples making less than $250,000 a year. Additionally, the student loans of income-eligible individuals who received Pell grants would be reduced by up to $20,000.

Who profits from student loans? ›

Banks often sell student loans to another intermediary, which improves their capital ratio and allows them to make more loans. Almost all student loans are fully guaranteed by the government, so banks can sell them for a higher price because default risk is not transferred with the asset.

Why is student debt a major problem in America? ›

More debt and less support have undeniably led to long-term debt burden and severe financial consequences. Although more students of color are attending college and pursuing the “American Dream,” student debt has delayed them from purchasing homes, starting businesses, and building generational wealth.

What is the root cause of student debt crisis? ›

Today's student debt problem can be traced to the 1960s, when California Gov. Ronald Reagan cut higher education funding and raised tuition. Once considered a public good, higher education became seen nationwide as a private commodity.

How does student debt affect society? ›

The truth is you will have less capital to pursue entrepreneurial projects if you're struggling to keep up with student loan payments. And a lack of new businesses can result in fewer jobs over the long run, leading to slower economic growth and productivity.

What is the benefit of loan forgiveness? ›

If you qualify for forgiveness, cancellation, or discharge of the full amount of your loan, you won't have to make any more payments on that loan. If you qualify for forgiveness, cancellation, or discharge of a part of your loan, you'll need to pay back the remaining balance.

How will student loan forgiveness help the economy? ›

Both student debt relief and SAVE will enhance the economic status of millions of Americans with student debt: enable them to allocate more funds towards basic necessities, take career risks, start businesses, and purchase homes with the understanding that they will never have to pay more than they can afford towards ...

Who needs student loan forgiveness? ›

If you work or have worked in public service such as government (federal, U.S. Military, state, local, or tribal) or certain non-profit organizations, you might be eligible for the PSLF Program. Visit the Department of Education's website for the latest PSLF guidance.

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