Canceling Debt Just Shifts the Burden

Debt is never completely canceled or forgiven, someone (in the case of student loan debt, it would be taxpayers) always pays the debt or incurs the burden.

About 43 million people, according to CNN.com, are waiting to find out if President Joe Biden will wipe away all or part of their federal student loan debt.

President Biden is “taking a hard look” at canceling or forgiving hundreds of billions of dollars in federal student loan debt — a decision his advisers believe would be “a complete disaster” for the Democratic Party in the midterms.

The White House floated loan forgiveness of $10,000 per student borrower. The debt forgiveness would add $245 billion to federal government debt, according to the Committee for a Responsible Federal Budget.

Digging deeper, it appears that the top 40 percent of wage earners hold the majority of student debt and would be the major benefactors of this Presidential Executive Order. Of student-debt holders between the ages of 25 and 40, the top 40 percent bears half of the total debt.

A new NPR/Ipsos poll finds majority support for forgiving $10,000 in federal student loan debt, but an overwhelming majority said the government should prioritize making college more affordable over forgiving existing student loans. https://t.co/wcLkmQQhUo

— NPR Politics (@nprpolitics) June 18, 2022

According to the IRS, if you borrow money and are legally obligated to repay a fixed or determinable amount at a future date, you have a debt. You may be personally liable for a debt.

If your debt is forgiven or discharged for less than the full amount you owe, the debt is considered canceled in the amount that you don’t have to pay.

In general, if you have cancellation of debt income because your debt is canceled, forgiven, or discharged for less than the amount you must pay, the amount of the canceled debt is taxable and you must report the canceled debt on your tax return for the year the cancellation occurs.

A majority Americans are opposed to blanket federal student loan debt forgiveness or cancellation. Because, it doesn’t seem fair to them if millions of student loans are forgiven, yet the money to pay the debt is going to have to come from somewhere, and it most likely will be on the backs of the middle class tax payers.

Many Americans made sacrifices so that they and their children could attend college and would not need student loans, largely because they sacrificed and saved enough money to help pay for college costs.

Additionally, many economists opine that you or the government simply cannot cancel debt, you can only move the obligation around. This simple economic principle seems completely loss on many Congressional politicians.

Debt cancellation — it’s a noble yet dangerous concept. Basically, the financial burden may not fall solely on the students with debt. Who would pay for it? Every U.S. taxpayer would pay for this relief.

So the Executive Order wouldn’t really forgive or cancel debt. It would simply make every American obligated to pay this federal student loan debt they didn’t sign-up for or reap the benefits from.

In short, student loan debts that are forgiven do not go to “debt heaven”. The obligations will fall onto the backs of American taxpayers.

References:

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