In the United States, over 45 million people have student debt, totaling over $1.7 trillion [1]. Because of this, many people have to put off buying a home, saving, or simply feeling financially independent for years. So, if student debt were to be canceled, it could make life much easier for millions of Americans.
Imagine having your debt forgiven and no longer paying a certain amount each month. This would allow you to have extra money and focus on other important things: starting your own business, buying a home, or not worrying about money anymore. In this article, we will discuss how student debt forgiveness could positively impact the lives of many borrowers.
Benefit 1: Increased Disposable Income
Canceling student debt means you no longer have to pay off your loans every month. This increases your disposable income — the amount of money that was previously spent on paying off loans.
This extra money can be used in various ways. For example, you can save it to buy a home, invest in a business, or spend it on personal development and entertainment. When people have more money to spend, it helps the economy grow.
Benefit 2: Economic Growth
When people no longer have to pay off their student loans, they have a significant amount of money freed up each month. These funds, previously used to pay off debt, can now be used for other expenses, such as buying clothes, food, or larger items like cars.
Writing off debt makes additional spending possible, which has a positive impact on business. Increased consumer spending leads to increased sales, which allows companies to expand and hire more employees. This creates new jobs, which gives even more people money to spend. This cycle drives overall economic growth.
Studies support this idea, too. For example, research from the Levy Economics Institute of Bard College suggests that canceling student debt could boost the U.S. economy by up to $108 billion annually over a decade [2]. Experts believe this kind of growth is possible because when people have less debt, they’re more likely to spend money on goods and services, which helps drive economic expansion.
Benefit 3: Improved Credit Scores
A credit score is a rating that banks use to determine your financial strength. Having a high level of student debt can negatively impact your credit score because it indicates that you have significant debt obligations.
If the government cancels this debt, it can be seen as removing a significant financial burden that no longer needs to be repaid. As a result, your credit score can improve because you will have less debt. An increased credit score is a positive factor because it can help you get better future terms on loans and credit cards.
Benefit 4: Enhanced Career Opportunities
When students have their debt forgiven, it opens up more opportunities in life. You can choose a job you enjoy without paying large sums every month, even if it is not the highest-paying. For example, it could be a job in the arts or science or even in a small company where it is not only the money that matters but also your personal interest.
Not having debt will also allow you to develop further – to learn new things, take courses, or even get a second degree. This can lead to even better job prospects in the future.
In general, debt cancellation will help you choose a career that makes you happy rather than one where the main thing is a high salary. This will make your professional life more interesting and more fulfilling.
Benefit 5: Greater Ability to Save for Retirement
After paying off your student loans, you can set that money aside for retirement. For example, you can place it within a retirement account, such as a 401(k) or an IRA. These accounts work in the respect that the money you place within them can grow over time through investment and interest. The sooner you begin setting aside money, the more you will have when you decide to retire.
That’s because these retirement accounts work on compound interest. In other words, you earn money on your money, then on the money that that money has previously earned. The longer the money stays in the account, the more it grows.
Consider this: If you start investing $300 monthly at a 6% annual return from the age of 30, by retirement time at age 65, you should have upwards of $300,000 set aside, depending on market conditions. This oversimplified example shows how early and continuous saving can be extremely powerful.
Benefit 6: Enhanced Ability to Buy a Home
Having your student debt forgiven can go a long way toward helping you buy a home. Here’s how it works:
- More money to save: When you don’t have to pay your student loans each month, you can put that money toward a down payment on a home. For example, paying $300 monthly in student loans could add up to $3,600 in yearly savings. That money can help you save up for a home faster.
- Improved credit: Having your student debt forgiven can improve your credit score. Research shows that people who pay off their debt can see their scores rise by 8 to 29 points [3]. The higher your credit score, the better your mortgage terms will be and the interest you’ll save over the life of your loan.
- Easier to get approved for a mortgage: When a bank reviews your mortgage application, they look at your debt relative to your income. The less debt you have, the better your score. Without student debt, your debt-to-income ratio will improve, and a bank will more likely approve you for a mortgage.
Benefit 7: Freedom to Pursue Further Education
Canceling student debt can allow people to continue their education without financial worries. Here’s why that’s important:
- Less Financial Burden: When you’re not paying off old student loans, you might feel more comfortable taking on new educational opportunities. This could mean returning to school for another degree or taking specialized courses that could help your career.
- More Opportunities: With no existing student debt, you might qualify for more financial aid if you study further. Financial aid can come in grants or new student loans with better terms.
- Career Advancement: Further education often leads to better job opportunities. Without worrying about existing debt, you’re more likely to invest in additional education that can lead to promotions, higher pay, or even a new career path.
Benefit 8: More Opportunities for Entrepreneurship
Canceling student debt can help people start their businesses. Without monthly payments on student loans, you have more money to use for your business ideas. This could be anything from opening a small shop to starting an online service. Not having this debt also makes it less risky to start a business because you don’t have to worry about paying back loans if things get tough. Plus, with no debt, you can use your money more freely to improve your business, like buying better equipment or hiring help.
Benefit 9: Greater Ability to Invest
Canceling student debt gives you more freedom to invest in things that matter to you. Without monthly loan payments, you can put your money into stocks, real estate, or even your business much sooner. Investing early is great because it gives your money more time to grow through compound interest—this means your investments make money, and then that money makes more money. Plus, with no debt holding you back, you can choose to support projects or start businesses that you’re passionate about. This not only helps grow your wealth but also lets you make a positive impact on things you care about.
Benefit 10: Reduced Economic Inequality
Many low-income families take out loans to pay for college. But this leaves them with huge debts after graduation. By eliminating this debt, more people can attend college without fear of financial hardship. This is especially important for those living in poor areas where it is difficult to find a good-paying job. Without debt, people will have more freedom to choose their careers – they can do what they love.
There is a gap between those who can go to school without debt and those who have to pay for it. Eliminating student debt will help close this gap and ensure everyone has an equal education opportunity.