With the presidential elections coming up, the candidates are putting their ideas out there on some of the hottest topics around. And what topic isn't hotter than student debt right now? Elizabeth Warren has proposed forgiving a large chunk of outstanding student debt. While another hopeful, Bernie Sanders, has come out with a proposal to cancel all student debt and make college free. If Sanders or Warren, were to get their wish, what could we expect?
What happens if we cancel all student debt?
The biggest benefit to these plans, is that no one would have student loan debt anymore. Now people who have put off important life milestones for student loan debt would be free to pursue them. More people would have money to save and pursue what they want to do. People who took high-paying jobs to pay their loans, could not think about changing their career path to pursue their dreams.
Paying off all student debt will help each of the 40+ million borrowers who have debt. But it would be most beneficial for the group that needs it most, those with under $10,000 in debt who did not earn a degree. This group struggles to pay back their loans, and often default, because they take on the debt without getting the increased income from getting a degree.
What about the negative effects?
Of course, cancelling student loan debt would come with it's own set of problems. While also helping those who need it the most, it provides more relief to those who more than likely won't need help repaying their loans. The groups with the highest amount of debts normally have that debt because they got an advanced degree, which will qualify them to earn a higher than average income.
In doing so, you would also anger a majority of people who paid their student loans off in a timely fashion. Those who already finished paying would receive no benefits and wonder why other got their loans paid, while they didn't.
Another big question on this policy, is where is the money coming from? For the government to pay the outstanding $1.6 trillion in student debt, they would need to get money from somewhere. This would call for a change in the budget, to reallocate the money, or for raised taxes to get the $1.6 trillion.
If the US were to cancel all student loan debt, no one knows exactly what would happen. For now, all we can do is speculate as to what the consequences would be. However, if student loan debt is giving you problems now, you could refinance your student loan debt with an income share agreement. Defynance allows you to refinance student loans to this revolutionary new model.
