How Student Loan Forgiveness Can Help Close the Racial Wealth Gap and Advance Economic Justice (2024)

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How Student Loan Forgiveness Can Help Close the Racial Wealth Gap and Advance Economic Justice? ›

In a 2020 paper for the Roosevelt Institute, a team of researchers found that “student debt relief would substantially improve the financial security of Black and white borrower households and have profound impacts for the asset security of Black households overall, who would experience substantial relative wealth ...

Both student debt relief and SAVE will enhance the economic status of millions of Americans with student debt: enable them to allocate more funds towards basic necessities, take career risks, start businesses, and purchase homes with the understanding that they will never have to pay more than they can afford towards ...

Eliminating this debt will start to narrow the racial wealth gap for young families, with 86.6% of Black students taking out federal loans to attend four-year colleges. Forgiving an additional $9 billion in student loan debt is helping more people get their finances on track towards wealth building success.

When debt burdens are lifted, student borrowers can start new businesses and in turn, create job opportunities for others. They can buy homes for the first time in their lives, pay down other debts such as their credit card bills, and have less reliance on social safety net programs.

People with higher incomes hold most of the student debt, and they stand to get the most benefit from mass student loan forgiveness. Magically “wiping away” student debt would do nothing to keep college costs and future student debt from rising.

All borrowers on SAVE receive forgiveness after 20 or 25 years, depending on whether they have loans for graduate school. The benefit is based upon the original principal balance of all Federal loans borrowed to attend school, not what a borrower currently owes or the amount of an individual loan.

Key Takeaways. Carrying student debt can affect your ability to buy a home if your debt-to-income ratio is too high. If you have too much student loan debt, you won't be able to save as much for retirement. Student loan debt can lower your credit score, especially if you fail to make on-time payments.

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.

We know that canceling student-loan debt takes money from the broader tax base—mostly made up of workers who did not go to college—to subsidize the education debt of people with “valuable” degrees. We know that higher-income families tend to borrow the largest amounts.

How could student loan forgiveness increase inequality? ›

Essentially, the research finds that forgiveness would benefit wealthier borrowers more than low- and middle-income borrowers. The authors stated that forgiveness outcomes would be uneven because “high earners took larger loans, but also because, for low earners, balances greatly overstate present values.”

Furthermore, the Roosevelt Institute also argues that canceling student debt would not be inflationary, particularly because higher wealth is unlikely to drive spending. Nonetheless, even economists hyper focused on inflation have concluded that canceling student loans is not a decisive factor in battling inflation.

Canceling debt also seems to violate the moral principle of following through on one's promises. Borrowers have a moral duty to fulfill their loan agreements, the philosopher Immanuel Kant argued, because reneging on promises is disrespectful to oneself and others.

How student loan forgiveness could help the stock market. With less money needed to repay debt, households could spend more on discretionary purchases. This could improve earnings for companies and boost investor confidence.

Federal student loan payments resuming on Oct. 1 will negatively affect consumer loan asset quality, including credit card, auto and, to a lesser extent, residential mortgages. However, the overall effect will be modest, according to a Moody's Analytics report.

Advocates argue that free college can reduce social inequality, eliminate student debt burden, produce a stronger workforce, reduce social problems, and drive economic growth. They believe that higher education benefits both individuals and society, and making it free will increase access and completion rates.

Putting extra money toward your loans means you have less money for paying off other debt, making a house down payment, building your emergency fund or saving for retirement. This is known as an opportunity cost: When you spend money on student loans, you may not have it for your other goals.