What if the U.S. Actually Forgives Student Loans?

Forgiving student loans is not an immediate solution to the problem nor is giving away something for nothing; nothing is truly free. Instead, an honest effort deserves positive solutions. It is essential to pay attention and follow new participatory pay-it-forward prosperity sharing social ecosystems with better choices. Best of luck and be kinder than the next, and follow us too.

Consequences of Immediate Forgiveness of All U.S. Student Loans

Let’s assume that a new amendment is passed in the dead of night, granting Congress the power to nullify any debt within the United States. Congress then votes to forgive these debts, and the President signs it into law the next morning.

Firstly, there would be a significant rise in the standard of living for young professionals. An immediate rise of $1,000 monthly would equate to a 20,000 raise, providing a substantial boost in their budgets. However, this would also bring substantial changes to the lives of older, wealthier individuals who have savings based on these debts.

The annuities and retirement plans of these wealthier individuals would face spontaneous failure due to the loss of income from repaying student loans. This drastic change could lead to widespread financial strain for many seniors, impacting their overall financial stability and long-term planning.

Immediate Impact on the Economy

In the medium to the long run, there would be a major boost to the U.S. economy. Young people currently holding significant amounts of student debt are significant contributors to economic growth. These individuals drive economies by purchasing homes, starting businesses, and forming families.

However, the heavy burden of student debt is an enormous drag on U.S. economic growth. According to a study by Kurt Guntheroth, loan forgiveness can be compared to bankruptcy, where loans are written off, leading to a shift of capital from rent-collectors to producers. This can be disruptive, as the individuals or institutions holding these loans may lose financially.

Challenges of Achieving Orderly Loan Forgiveness

The hard part comes in achieving an orderly means of loan forgiveness, especially when loans have become burdensome. Following bankruptcy laws and successful bankruptcies, such as the case of GM, and loan forgiveness in developing countries, an orderly approach is essential.

For orderly loan forgiveness to be economically healthy, it must follow certain criteria. These include ensuring the debt is no longer a productive asset but rather a hindrance. Institutions and individuals must be prepared for the shift, and there should be clear pathways for those who have already faced financial hardships and burdened by student loans.

Conclusion

While forgiving student loans might seem like an attractive solution, the reality is more complex. Such a move would have significant short-term impacts, including a boost in young people's living standards and the potential for financial turmoil for older, wealthier individuals. To achieve a sustainable and economically healthy outcome, the process of loan forgiveness must be handled with care and follow established, orderly procedures.