Student Loans

Pros And Cons Of Student Loans – Should We Forgive Student Loan Debt?

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Pros And Cons Of Student Loans – 3 Tips

Student Loan Forgiveness
Stimulus Package Update
Second Stimulus

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As more and more conversation is centered on stimulus proposals there is one I haven’t seen a whole lot of information on, student loan forgiveness. It seems messy, it seems hard to do, and it seems complicated. So my editor and I took it upon ourselves to dive into the research on this. I will go into the pro, the cons, and the research on student loan forgiveness. The results were honestly surprising.

There are already some proposals in place regarding student loan forgiveness including

Rep. Omar’s proposal to cancel $30,000 of your student loan debt.

And Former Vice President Joe Biden support for $10,000 student loan forgiveness

There are also programs currently in place for student loan forbearance allowing you to defer payments for a few months.

Letting people off the hook for student loans seems great but I was curious what the actual effects this would have on the economy and boy was I in luck. There’s a huge 68 page study on this. Don’t worry you don’t have to read it, I’ll cover all the interesting points. However I’ll have it linked if you want to take a look. http://www.levyinstitute.org/pubs/rpr_2_6.pdf

This study is called THE MACROECONOMIC EFFECTS OF STUDENT DEBT CANCELLATION

It starts by talking about how the increasing demand for college credentials coupled with rising costs of attendance have led more students than ever before to take on student loans, with higher average balances.

The combination of the social pressure to get a degree with higher tuition costs is making loan balances skyrocket.

They go on to say there are tons of social benefits in investing in higher education including:

human capital accumulation

social mobility

greater tax revenues and social contributions that flow from a highly productive population

However:
every 10 percent rise in student loan debt reduces the home ownership rate of borrowers by 1 to 2 percentage points in the first five years after leaving school.

And a study titled “The Impact of Student Loan Debt on Small Business Formation.” states:
high student loan debt dampens business formation, with the strongest effects among the smallest firms. (Ambrose, Cordell, and Ma 2015)

There’s a negative relationship between student loan debt levels and small business formation, amounting to a 14 percent decline in new businesses in counties where student loan debts are highest.

The researchers say if student debt is dampening household economic activity, we can expect forgiveness from this debt to produce a stimulus effect that will partially offset the cost of the program.

So let’s get into what debt forgiveness will do to the economy:

These researchers used both the Moody’s and Fair models on risk management and data analytics to make predictions on what the economic effects would be. Here are some of the highlights:

The simulations state this debt relief could boost real GDP by an average of $86 billion to $108 billion per year. This would be as that money is freed up and people can spend those funds elsewhere.

Would reduce the average unemployment rate by 0.22 to 0.36 percentage points over the 10-year forecast.

And this would create more jobs with the positive entrepreneurial effects with 1.2 million to 1.5 million new jobs per year

So this is great but what are the consequences, well the simulations both state inflationary pressures, but not quite as bad as you may suspect.

In the Fair model inflation peaks at about 0.3% points and turns negative in later years.

In the Moody’s model the effect is even smaller at 0.09%

This would pressure the Fed to increase interest rates by around .3% to .5% short term with longer term increases of around .2%-.35%

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Disclaimer
This presentation does not constitute legal or tax advice. It is provided solely for informational and educational purposes and does not fully address the complexity of the issues or all the steps businesses must take under
applicable laws. You should consult your professional advisers regarding your individual situation. Max Maher undertakes no obligation to update the information in this presentation, and no representations are made that
the content is error-free.

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26 Comments

  1. Kelly Blodgett
    July 25, 2021 at 8:35 pm

    As a personal finance coach, while student loan debt is overwhelming for people, it is also usually coupled with other debts like credit cards or car loans and so the behavior and how society sees debt needs to change. Eliminating student loan debt doesn't solve the problem.

  2. Nelson Jimenez
    July 25, 2021 at 8:35 pm

    Government should forgive Student Loans upto $20,000 ? 🤑😊👍And Should Be Just A One Time Things ?
    People were having Problems paying Their Student loans before Covid-19 ?
    Imagine After ? ? ? 😲😲😲😲

  3. Christine Kingston
    July 25, 2021 at 8:35 pm

    I love the fact that you pulled research on this and explained why forgiving student loans won't hurt, but rather would likely benefit the economy over time. My opinion is that we provide FREE education because we need healthcare professionals who are willing to go on the front lines of a pandemic and since we value life so much, it should be worth a free college education. In fact, I think we need to take PROFIT out of education equation all together. If knowledge is power and education helps to gain useful knowledge then education is power too! If education were free we would actually have more candidates lining up for these careers and could then choose among the most fit for the job. Another benefit to having free education would be to eliminate that barrier for those without means to be able to serve in their highest and best purpose without serving a financial life sentence in debt repayment. Oh, and maybe we should ACTUALLY educate people and start with some financial literacy. Okay, send my wish out to the universe and let's get with transforming the world here.

  4. Ryan Otero
    July 25, 2021 at 8:35 pm

    Realistically, I think what they should do is STOP the interest. That's whats the biggest issue. You have all these assholes who bitch and moan going "Pay BACK YOUR STUDENT LOAN! WHY ARE YOU SO LAZY? i HAD TO SUFFER SO YOU MUST SUFFER" and they fail to realize some people are tying but can't because of the interest. Like it's one thing to have an interest of like $40 a week but $40 a day? You're basically only playing off the interest and not decreasing the amount at all. So put a cap on the interest, the loan can't get any higher and that gives the person hope and more determination to pay it off.

  5. Kim Singletary
    July 25, 2021 at 8:35 pm

    Good job. Some of the points you presented I raised without having seen the 68 pg. Report. I am in favor of total student loan forgiveness as part of the Stimulus pkg for all of the benefits to families, economy and employment. I don't get why banks, auto industry, airlines, restaurants, corporations and business owners can get bailed out, loan forgiveness but not mom and pop, or grandma and grandpa, or the struggling single parent who brought the line get a degree, a higher degree, a phd to be better equipped to produce or serve and ended up mortgaging their and their childrens future to the Fed. Gov't.

  6. Queen Brooksie
    July 25, 2021 at 8:35 pm

    I was never able to afford to go to college even though I really wanted to go. No way is any of the tax money I pay in going to pay off someone else's loan, I will vote against any politician that votes for something like that. They KNEW how much the education was going to cost, they can pay their own debt. Otherwise, what is next? People need to be responsible for their own financial decisions, it's called growing up and being an adult.

  7. rachel scott
    July 25, 2021 at 8:35 pm

    I have $6584 in student loan debt and pay $75 monthly. I wish I never got them.😣😫

  8. Adam Voegtli
    July 25, 2021 at 8:35 pm

    It wouldn't even make sense to do without getting rid of the underlying cause of crazy tuition. We need to get rid of federal student loans before considering that. Tuitions keep going up because of these loans and we'd be back in the same spot if we don't abolish federal student loans altogether. If you don't get rid of the root cause of the problem nothing gets solved it's just a bandaid

  9. Kelly Kennedy
    July 25, 2021 at 8:35 pm

    I have 10 student loan on my credit and I went to one college. It's hurting my credit!!

  10. Sean Lee
    July 25, 2021 at 8:35 pm

    People need to learn to live within their means. Took me 15 years to pay off my 38k loan. Do you really need that 1K iphone? Administration in higher education has become severely bloated just like the government.

  11. priola7
    July 25, 2021 at 8:35 pm

    I have paid more in interest than I borrowed. My income was puny for the first 8-10 years. Interest 6.5% on $65k. If I converted to a lower interest loan, all the federal protections for borrowers, such as deferment, death forgiveness, etc. goes away. Why does the government need to make money off the backs of student borrowers? Zeroing out all the interest would by itself be a blessing.

  12. Rhognald McDognald's
    July 25, 2021 at 8:35 pm

    Informative thanks

  13. Tracy Adams
    July 25, 2021 at 8:35 pm

    25 year old adults aren't looking to by a home so that shouldn't even be a thing. Also, what are the percentage rates of degree to jobs? Meaning, how many people are actually getting jobs in the field they studied for four years? I would be surprised if it was above 1/3 of graduates. So the premise would be forgiving a loan that you had no intention of making money in the field you studied. They are adults, they signed a loan agreement, they owe the money back. Period.
    If I buy a car or house should I not pay the loan back if I don't use either one?

  14. Paige Dauphinais
    July 25, 2021 at 8:35 pm

    IT DOES ABSOLUTELY NO GOOD to keep giving out small business loans… What good will it do IF WE AS INDIVIDUALS have no money to buy from these businesses. It will be impossible for them to survive without giving us direct stimulus checks!!

  15. Carmen Sidari
    July 25, 2021 at 8:35 pm

    They deserve nothing.. send the money to wall street

  16. Ed Ruffing
    July 25, 2021 at 8:35 pm

    Couldn't disagree more. You knew the impacts when you signed up for school. Anytime you want a good/service, there is an associated cost. Accept your own responsibility.

  17. ardeay
    July 25, 2021 at 8:35 pm

    I'm the ahole who worked really hard to pay down my loans. Now my friends who continues to forebear win at life.

  18. Ringo
    July 25, 2021 at 8:35 pm

    at least bring back consumer protections like Bankruptcy. there are a bunch of couples i heard from that will never be able to afford to have children because of their student loans. More and more people are pushing back having kids one reason is student loans then becomes too late

  19. Christopher
    July 25, 2021 at 8:35 pm

    It would be helpful if you also mentioned Moody's report that student loan forgiveness would lead to universities increasing tuition at a faster rate, a greater number of people going to college taking on larger debts, and students seeking private schools over public schools because of the perception it would be forgiven. Also a one time forgiveness does not solve the long term problem, and instead would lead to inflation….at a time when it is already expected to outstrip wage growth.
    If you look at the statistics, students attend college a full year longer on average then they did in 2000…for the same degree. The graduation/ matriculation rate has fallen from over 60% to less than 50%, and meanwhile colleges have effectively doubled the cost over 16 years.
    Lastly, what are you teaching these people with $300,000 in student loans who will become doctors and make a good living based on their degree, and how do you tell the college freshmen too bad, you are getting hosed when the seniors all get a free ride?

  20. RJE
    July 25, 2021 at 8:35 pm

    Who forgives my loan for my house, car, doctor bills?

  21. The Kraemer
    July 25, 2021 at 8:35 pm

    No such thing. Someone has to pay it back.Just like free (fill in the blank) it's not free.

  22. Darth Conquest
    July 25, 2021 at 8:35 pm

    Sam Winchester doesn't have any student loan debt? 😂 Just kidding. Very insightful video though!

  23. Brenda K.
    July 25, 2021 at 8:35 pm

    Forgive the interest . That's the largest part of the loan 10/20/30 yrs. Down the road. And MAX , your NEVER boring with those beautiful blue eyes. Regards Brenda

  24. Chicken Fried Rice
    July 25, 2021 at 8:35 pm

    Nope. If they forgive student loans, they need to give money back to those who have paid their back already.

  25. Drefner 23
    July 25, 2021 at 8:35 pm

    No. We shouldn't even forgive students. For anything. Ever.

  26. TTundragrizzly
    July 25, 2021 at 8:35 pm

    Short answer: no