Who pays for student loan forgiveness?

The federal government pays the upfront cost to cancel student loans, but the bill will eventually fall on taxpayers. 

Critics and economic experts continue to debate the pros and cons of student loan forgiveness. 

Some worry that the forgiveness plans will increase federal deficits (how much the government spends minus how much it earns) and harm the economy by increasing national debt. 

Others argue that the United States has run on a deficit every year since 2001, and the country’s deficits over the last five decades have averaged 3% of the U.S.’s Gross Domestic Product (GDP). GDP is the most common measure of a country’s economic size and growth and in the simplest terms is a way to measure how much money a country is making. Given this number, student loan forgiveness would not have an outsize impact on the U.S. economy. 

Many advocates say that it is more important to cancel student loan debt and positively impact borrowers’ spending power and financial health immediately than to worry about the long-term effects of a possible federal deficit.

Student loan forgiveness could help close wealth gaps that exist along race, gender, and class. Removing the burden of debt from marginalized communities could allow them to invest in their futures, build assets, and achieve financial security.