Question

Why is it a bad idea to forgive student loans?

What would be the negative consequences of forgiving student loans?

Answer 1

Ans: Forgiving or waiving students loans also has an adverse effect. Firstly, it has a very bad impact on the financial and banking sector of the economy. The banks are unable to recover with such debt crisis for years.

Secondly, it has led to a moral hazard. With time the rate of defaulters has increased. Students have started taking loans with an expectation that they will be waived which has led to an increase in defaulters. Also, most of the beneficiaries of such waivers do not have high returns. The cost of forgiving loan has been higher than what the students actually reimburse to the economy. This has also increased the federal deficit.