“ Pros and Cons of Debt Cancellation
Moody’s Investor Service predicts wiping out student debt would yield a stimulus to economic activity that is comparable to tax cuts in the near term, according to reporting by CNBC.16 Over the longer term, it could increase homeownership and boost the creation of small businesses. Outright debt cancellation would boost real gross domestic product (GDP) by $86 billion to $108 billion per year, according to one study from Bard College’s Levy Economics Institute.17
However, analysts warn of the risk of moral hazard caused by implying that the cost of your decisions will be borne by someone else. This could lead to even higher student debt burdens, as borrowers assume forgiveness will be ongoing.18Another argument suggests that forgiving student loan balances will provide, at best, a weak stimulus to the economy, because the savings are realized in small amounts over a long period of time, depending on how much a borrower pays back monthly with full or partial forgiveness.19”