What You Need To Know About Cancelling Debt
Hey there! If you’re struggling under the weight of student debt, you’re definitely not alone. Millions of Americans are dealing with this issue, and it can feel totally overwhelming. The good news is that there are steps you can take to get your debt under control. In this article, we’ll walk through everything you need to know about cancelling student debt—from understanding the recent proposals, to figuring out if you qualify, to weighing the pros and cons. We got you!
The Current Landscape
Right now there’s a ton of discussion around President Biden’s proposal to cancel up to $10,000 in federal student loan debt for certain borrowers making under $125,000 a year. There’s also talk of cancelling up to $20,000 for Pell Grant recipients. These proposals haven’t become law yet, but they signal a shift in how we think about student debt relief.
-While $10,000 or even $20,000 doesn’t wipe out debt for everyone, it would provide much-needed relief for millions of borrowers. Over 40 million Americans have federal student loan debt, with the average balance around $30,000. So even partial debt cancellation could be huge.
Do You Qualify?
If any version of Biden’s plan gets approved, you’d likely qualify for debt cancellation if:
- Your annual income is below $125,000 (or $250,000 for married couples)
- You have federal (not private) student loans
Extra relief would go to Pell Grant recipients, who tend to have more debt from low-income backgrounds. But the income cap means high-earners wouldn’t benefit.
This has sparked debate. Some argue it’s unfair to exclude higher-income borrowers who still struggle with debt. Others say targeting lower-income groups is more equitable. There are reasonable points on both sides.
-Weighing the Pros
Canceling federal student debt—even partially—could have many upsides, including:
- Immediate financial relief for millions of borrowers
- Faster debt repayment and savings on interest
- Ability to spend/save more, stimulating the economy
- Increased home-buying, small business growth, and asset gains
- Advancing racial equity given disproportionate debt burdens
Research shows broad debt cancellation could boost GDP, increase median wealth (especially for Black households), and support new business creation.
Plus, current repayment systems are clearly broken. Forgiveness could help fix a dysfunctional system and predatory lending practices impacting millions.
And the Cons
Of course, there are also potential drawbacks to debt cancellation, like:
- Large cost to government (estimated at $300 billion for $10k per borrower)
- Concerns over inflationary pressure
- Criticism that it doesn’t solve root college affordability issues
- Arguments that it’s unfair to non-borrowers
- Risk of colleges further raising prices if they expect future cancellation
There are legitimate worries over increased public spending. And one-time cancellation doesn’t fix the underlying problem of rising tuition. But many argue it’s a powerful starting point.
-The Ethical Debate
There’s also an ethical debate around debt cancellation. Some view it as unfairly absolving borrowers of obligations they agreed to. Others see it as correcting for an unjust system. Consider:
- Predatory loans were pushed on many who couldn’t repay them.
- Teens can’t reasonably assess lifelong debt burdens.
- Massive debts limit life opportunities.
Given these factors, many ethicists argue cancellation advances fairness and repairs harm done to borrowers.
Possible Alternatives
Full debt cancellation faces hurdles in Congress. But there are alternatives lawmakers could consider, like:
-- Capping interest rates on federal loans
- Making repayment income-based
- Forgiving debt after 10-20 years of repayment
- Discharging loans in bankruptcy
- Expanding Pell Grants
- Making community college free
Combining even more modest cancellation with reforms could really help struggling borrowers.
The Takeaway
Student debt relief won’t fix every problem or seem fair to everyone. But it would bring life-changing financial relief and opportunity to millions weighed down by crushing loans. For many borrowers, partial cancellation could make repayment possible rather than hopeless. And that would be an economic stimulus that benefits us all.
So don’t feel ashamed if you need debt forgiveness. This isn’t a personal failing—it’s a systemic problem. Have hope though, because public attitudes are shifting. With enough advocacy, real change is possible. We’re rooting for legislation that lifts this burden and sets you up for success.
References
[1] Biden’s student debt cancellation doesn’t solve the root problems facing borrowers—but it’s a start
[2] The Impact of Canceling Student Debt
[3] Why I Changed My Mind on Student Debt Forgiveness
[4] The ethics of canceling student debt is more about fairness than broken promises
[5] Ten Reasons to Cancel Student Loan Debt
[6] Before We Talk About Student Debt Cancelation, Can We Talk About Interest Rates?