Pro Con Student Loan Debt Should Student Loan Debt Be Eliminated via Forgiveness or Bankruptcy Written by the Editors of Pro Con Fact checked by the Editors of Encyclopedia Britannica Last Updated Dec 21 2024 Found at https www britannica com procon student loan debt debate Student loan debt is frequently in the news as politicians debate solutions to the rising costs of college that lead to sometimes crippling amounts of debt For those with outstanding student loans such debt can be discharged in two ways forgiveness and bankruptcy As of Apr 2024 Americans owed a collective 1 75 trillion in student loan debt with an average of 28 950 owed per borrower By comparison in Dec 2010 Americans owed about 845 billion in student loan debt and by 2020 student loan debt had increased by about 102 over those 10 years At the end of 2024 43 2 million Americans held outstanding student loan debt 1 53 52 2 The New York Federal Reserve reported that about 11 of student loan debt payments were either late or in default 270 or more days late at the beginning of 2020 By all indications this debt and the late payments and defaults as well will continue to rise as college costs outpace average incomes 5 6 7 Some have proposed that the U S government forgive some or all existing student loan debt in order to relieve the financial pressure on individuals and the country Student debt forgiveness proposals range from a discharge of 10 000 per borrower which would forgive the entire debt bills held by about 15 million borrowers to 50 000 per borrower which would forgive the entire debt bills held by about 36 million borrowers to plans that would forgive all outstanding student loan debt Each plan would include forgiveness for those with late or in default accounts as well as partial debt forgiveness for many more borrowers 8 The Wharton School of the University of Pennsylvania estimated that depending on details over ten years college debt cancellation will cost between 300 billion for a one time cancellation of 10 000 for borrowers earning under 125 000 per year and 980 billion for a one time cancellation of 50 000 per borrower 43 Others have proposed making student loan debt easier to discharge through bankruptcy Credit card debt medical bills auto loans and even gambling debt can be canceled by declaring bankruptcy but because of a 1976 federal law discharging student loan debt is much more difficult Private student loans have also been protected from discharge by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 According to the U S Department of Education people who declare Chapter 7 or Chapter 13 bankruptcy can have student loan debt canceled only if a court finds there is evidence of undue hardship Getting student loans discharged is so difficult and rare however that many lawyers advise clients not to try less than 13 12 11 10 0 5 of students clear their debts through bankruptcy 9 In Mar 2020 at the beginning of the COVID 19 pandemic President Trump paused federal student loan payments interest accrual and debt collection Congress voted to keep the pause through Sept 30 2021 and Trump extended it again through Jan 2021 President Joe Biden maintained the pause with several renewals after taking office through Dec 31 2022 While some disagree with the continuation of payment interest and collection pauses others question why federal student loan debt can t be canceled if the federal government can do without payments for almost three years 41 On Aug 24 2022 President Biden announced a cancellation of up to 20 000 of federal student loan debt for Pell Grant recipients and up to 10 000 for other qualifying borrowers The White House stated that about 43 million borrowers would qualify for the cancellation and 20 million borrowers would qualify to have their debt completely canceled The debt cancellation program mired in lawsuits since its announcement was stayed until on June 30 2023 the U S Supreme Court struck down the student loan program in a 6 3 vote under the premise that federal law 50 49 48 does not permit the U S Department of Education to cancel such student loans 42 As a result of the invalidation of the mass cancellation program the Biden administration has canceled student loan debt for several smaller groups including students taken advantage of by predatory institutions The administration stated that as of May 1 2024 it had forgiven more than 160 billion in student loan debt for nearly 4 6 million borrowers 51 Pro Arguments Pro 1 Student loan debt is slowing the national economy Forgiveness would boost the economy benefiting everyone Student loan debt slows new business growth and quashes consumer spending A Federal Reserve Bank of Philadelphia study finds a significant and economically meaningful negative correlation between student loan debt and the falling rate of new small businesses Such debt can make getting a business or any other loan difficult so people with student loan debt are less likely to be able to open businesses And the effects snowball from there fewer small businesses means fewer jobs and less economic output and consumer spending which in turn means lower 15 15 national income and slow economic growth for the country 14 As William Foster a vice president and senior credit officer at the financial services company Moody s explains U S real GDP could be boosted on average by 86 billion to 108 billion per year which is quite a bit That s if you had total loan forgiveness Though Foster stated total forgiveness isn t necessary to see a positive impact 16 President Biden when announcing his loan cancellation program stated I ran for office to grow the economy from the bottom up and the middle out because when we do that everyone does better everybody does well The wealthy do very well the poor have a way up and the middle class can have breathing room And that s going to help America win the economic competition of the 21st century That s what today s announcement is about It s about opportunity It s about giving people a fair shot It s about the one word America can be defined by possibilities It s all about providing possibilities 46 When everyone can t participate in the economy the whole economy suffers Pro 2 Student loan debt has disproportionately hurt Black students Forgiveness could help rectify racial inequity Black college students borrow more than their white counterparts because of family income generational wealth parental education and the