How student loan forgiveness will affect the economy - What it means for you

Over the past few days, Biden has announced his plan to forgive all federal student loans. The plan provides up to $20,000 in student loan forgiveness for borrowers with Pell Grants and up to $10,000 in student loan forgiveness for borrowers without Pell Grants. For the 2022-2023 school year, a borrower must have an income below $125,000 to qualify for loan forgiveness.<br><br>If you're like me, you've heard tons of speculation and mixed opinions about the plan. Some claim that it will "save" the economy, while others say that it will "ruin" the US economy. So, what actually would happen if student loans were forgiven?<br><br>There are quite a few different approaches to understanding how the economy would react to large-scale student loan forgiveness. The approaches that I took primarily into account while writing this post were<br><br>* **The Plan's Impact on Inflation:** Student loan forgiveness could theoretically increase inflation in two different ways. First, cancelling student loans would immediately increase consumer spending. This would increase demand for consumer goods and cause companies to raise their prices, which would cause inflation. Second, student loan forgiveness would allow consumers to borrow more money. This means that consumers could take out more loans to fund large purchases, thereby increasing consumer spending and causing inflation.<br>* **The Plan's Impact on US Deficit:** Cancelling student loans would inevitably cost the US government an immense amount of money. Biden's student loan forgiveness plan would be the largest ever forgiveness of student loans. This means that the government would have to either print more money to pay for the plan or take on more debt. In either case, the plan would increase inflation and could negatively impact the US economy in multiple ways.<br>* **The Plan's Impact on Tax Revenue:** If large numbers of student loans were forgiven, the government would lose billions of dollars in revenue that it would have made from student loan interest. This means that the government would have to either increase taxes or take on more debt. This would lead to higher inflation and negatively impact the economy.<br>* **The Plan's Impact on Consumer Spending:** Cancelling student loans would give consumers more money to spend. This could increase consumer spending, causing businesses to hire more workers and increase wages. This could lead to a large increase in economic activity, which would be good for the economy.<br><br>Overall, forgiving all student loans would have a number of different effects on the economy, both positive and negative. While it would give consumers more money to spend, it would also increase inflation, increase the deficit, and cause the government to lose billions of dollars in revenue.<br><br>**How Student Loan Forgiveness Will Affect You**<br><br>This is where things start to get a bit complicated. Different people would be affected differently depending on their individual economic circumstances, and existing student loans. However, for the average American, forgiving student loans would have a few consistent effects:<br><br>* If you have student loans yourself, you would no longer have to pay them. Depending on how much debt you have, this could lead to a significant increase in your cash flow and allow you to take on additional credit.<br>* If you don't have student loans, it wouldn't have a direct effect on you. You might notice higher prices for consumer goods due to inflation, but your overall lifestyle would likely not be affected in the short term.<br>* If you work in an industry related to student loans, such as higher education or financial services, you may see changes in your job or opportunities due to the shift in the student loan market.<br><br>It's also important to consider the potential long-term effects of student loan forgiveness on the economy and society as a whole. For example, it could lead to changes in how higher education is funded and accessed, or impact the overall affordability of education.<br><br>Overall, the impact of student loan forgiveness on your personal finances will depend on your individual circumstances, including whether you have student loans and how much debt you carry. Consider all the angles and assess the potential effects on your financial situation to make informed decisions.<br><br>**Is Student Loan Forgiveness Lawful?**<br><br>There are currently several lawsuits filed challenging the legality of Biden's student loan forgiveness plan. The lawsuits claim that Biden does not have the legal authority to unilaterally cancel student loans. If the lawsuits are successful, Biden's student loan forgiveness plan would be blocked and student loans could continue to be collected.<br><br>&#x200B;