Student loan forgiveness remains a contentious issue as approximately 43 million Americans carry a combined $1.7 trillion in federal debt. Recent data reveals that total student loan debt in the United States has reached $1.773 trillion, with federal loans comprising 92.4%.
Although average balances hover around $38,375 for federal debt and up to $41,520 overall, growing trends in borrowing signal increasing financial pressure on individuals.
With 42.7 million borrowers affected and default rates nearing 5% for federal loans, the promise of widespread forgiveness must be weighed against complex fiscal and social implications as policymakers debate feasible reforms.
Here are 10 critical reasons that explore the potential pitfalls and unintended consequences of student loan forgiveness policies.
Unfair to Those Who Already Paid Their Debt
Imagine working two jobs, delaying homeownership, or skipping vacations to pay off $50k in loans—only to watch others get relief for free. 20% of U.S. adults report having paid off student loan debt, often through years of sacrifice. Blanket forgiveness penalizes this group while rewarding those who prioritized other spending.
Instead of broad forgiveness, expand income-driven repayment plans to ease current burdens without alienating past borrowers.
Creates a Moral Hazard
Forgiveness sets a dangerous precedent: Why repay loans today if the government might cancel them tomorrow? This “moral hazard”—where individuals take risks because they expect others to bear the cost—could distort behaviour at every level.
Students might borrow excessively for low-value degrees, while colleges, insulated from accountability, could hike tuition further.
As Forbes notes, repeated calls for forgiveness embed expectations of future bailouts, creating a cycle where debt surges and taxpayers foot the bill. A better way would be to cap loan amounts or tie borrowing limits to degree ROI to encourage smarter decisions.
Exacerbates Inflation
The core concern with broad student debt forgiveness is its hidden cost: shifting liabilities from borrowers to taxpayers, not erasing them. Under the Biden administration’s 2022 debt relief plan, when inflation was already at historic highs, economists warned that transferring hundreds of billions in debt to the government’s balance sheet—without cuts to spending or new revenue—could worsen price pressures.
While the plan aimed to help middle-class borrowers, critics argued it risked injecting indirect stimulus into an overheated economy, making it harder to curb rising costs. In essence, relief should focus on those truly in crisis, paired with reforms to prevent colleges from hiking tuition unchecked.
Legal and Logistical Nightmares
Widespread debt forgiveness is legally risky and complicated. Unclear rules about who qualifies, issues with private loans or future students, plus government delays and lawsuits could take years to resolve—leaving millions stuck waiting.
A better approach would be to improve current repayment systems first. They’re faster, fairer, and avoid the mess of total cancellation.
Ignores Skyrocketing Tuition
College tuition continues to surge—private universities hiked fees by 4.2% in 2024, while in-state public schools increased costs by 4.4%, far outpacing inflation. This cycle persists because federal loans guarantee payment, letting schools raise prices unchecked.
Even proposals like Project 2025, which aims to reduce debt forgiveness and raise monthly payments, fail to address the core issue: colleges have no incentive to lower costs.
The solution? Tie federal funding to tuition freezes or force institutions to share the risk of student loan defaults. Until schools face the consequences of price-gouging, debt will keep ballooning—with or without forgiveness.
Doesn’t Solve the Long-Term Problem
Forgiving existing student debt ignores future borrowers. Without systemic reforms such as lowering tuition costs or expanding affordable education pathways—the same debt crisis will resurface within a decade.
Invest in tuition-free community college and apprenticeship programs to reduce reliance on loans and address the root causes of student debt.
Shifts the Burden to Taxpayers
Student debt cancellation transfers costs directly to taxpayers, with the National Taxpayers Union estimating an average burden of $2,503.22. These costs—funded through tax hikes, spending cuts, or borrowing—would disproportionately fall on high earners, even though debt relief primarily benefits college graduates with higher lifetime earnings.
Forgiving loans to the educated elite, while neglecting investments in K-12 education or vocational training, prioritizes one group at the expense of broader societal needs.
Redirect funds to programs that empower non-college workers, like modernizing high schools or subsidizing trade certifications, to bridge the opportunity gap.
Disproportionately Benefits Higher Earners
Student loan forgiveness isn’t just unfair but regressive. According to research, the wealthiest 20% of households hold nearly 30% of all student debt, while the poorest 20% owe just 8%.
Blanket forgiveness rewards high earners—like doctors and lawyers—while doing little for low-income workers or those who skipped college. It worsens inequality across income, education, and wealth.
What should be done instead is to target relief to borrowers earning under $75k/years who are the ones who actually struggle instead of subsidizing the privileged.
Diverts Funds from Other Critical Needs
A $1.7 trillion debt write-off steals from future generations, prioritizing debt cancellation over urgent investments like crumbling infrastructure, universal preschool, or affordable healthcare.
Forgiving loans forces taxpayers to fund a wealth transfer to college graduates while ignoring crises like climate change or public health.
Redirecting those funds could cut carbon emissions with renewable energy grids, reduce suicide rates via mental health access, or rebuild aging bridges—priorities with lasting societal returns.
Sets a Dangerous Precedent
If we forgive student loans, what stops demands to erase mortgages, credit cards, or medical bills? Widespread debt cancellation could crash credit markets—banks might stop lending if they fear future bailouts.
The focus should be directed towards fixing the root problems like sky-high healthcare costs instead of temporary fixes.
