President Biden’s Executive Order canceling $10,000 (or $20,000 for Pell Grant recipients) is currently in limbo as it moves through the U.S. court system. Many are concerned about the repercussions of what canceling so much federal debt will do to the economy, but new studies are indicating that student loan debt relief could be a boon to both the economy and small businesses around the U.S. Here’s why.
1.Student loan debt prevents entrepreneurs from taking risks and innovating
A study by Capital One in 2022 showed that 30% of small business owners listed their student loan debt as a significant factor impacting their ability to grow their businesses. Another survey done by the Ewing Marion Kauffman Foundation found that since the U.S. DOE has paused student loan payments, 47% of small business owners have been able to invest more in their businesses, explore new business debt consolidation strategies, and better contribute to local economies.
2.Student loan debt forgiveness will impact the spending power of small business customers
Nearly 90% of the total debt cancelation will go to borrowers who earn less than $75,000 per year. The more discretionary funds available, the higher the likelihood that money set aside for student loan payments will end up boosting the local and national economies. A study done by Intuit found that 82% of consumers focused their spending on local businesses during the pandemic, and 70% said they shop locally when possible, regardless of COVID-19.
3.Black-owned businesses will see a significant impact
Analysis by the Department of Education shows that black student loan borrowers are disproportionately affected by student loan debt, with a student loan debt load of 95% of their original balance after 20 years post-graduation. Canceling that burden will allow more black- and minority-owned businesses to start or expand, as only 2.3% of all US businesses are black-owned (as of 2019).
Who does student loan forgiveness really help?
Those who oppose canceling student loan debt use the talking point that it’s designed to help the wealthy and affluent, leaving the lower and middle classes to foot the bill, when the opposite is true.
To be eligible for student loan debt cancelation, you must earn less than $125,000 per year if you file as a single person or $250,000 a year per household. Current statistics by the DOE show that this makes a potential 43 million Americans eligible to have their debt burdens forgiven. $125,000 or under would be considered middle class in the most favorable situations or even lower class in some areas of the U.S. The “burden” wouldn’t be passed onto the lower classes; if anything, it’s the lower and middle classes that would benefit from debt forgiveness the most.
The bottom line
If you’re worried about the potential fallout from canceling so much federal debt, remember that these concerns are being voiced by people who stand to make a lot of money from the status quo. Take a closer look at the studies and data before deciding – you might see that canceling student loan debt will likely positively impact both the economy and small businesses around the country.