Debt Relief or Fiscal Folly? This House believes that student debt cancellation is economically unjustified.

Navya and Jaidev, members of the Edinburgh University Debates Union, each explore an argument regarding the economic consequences of student debt. Weighing the pros and cons while analysing multiple facets of this contentious topic.

An empty House of Commons

Navya – Proposition

Student debt is money that is loaned by the government to students in order to pay tuition and maintenance fees. As it stands, student loans are written off between 25 and 30 years after they were first received. However, cancelling student debts refers to the nullifying of all future payments on outstanding student loan debt. Student debt cancellation is proposed as a way to promote economic growth and empower students to contribute to the economy in meaningful ways that are not solely meant to pay off their debt. As the proposition for this argument, I will bring forth both the economic concerns associated with the unjust nature of debt cancellation and prove that it will only further create the very problems it aims to solve. 

 

Economic Dependency on Student Loans

Cancelling student debts is economically unjustified as student loans form a substantial part of the UK’s economy, and dismantling this mechanism will have cascading negative repercussions. In 2025, annual student loans in the UK reached a high of £20.7 billion, constituting nearly 0.80% of its GDP. Student debt is, therefore, a pivotal part of government fiscal planning, and repayment flows from these loans are accounted for in future forecasts. Furthermore, these student loans are paid directly to universities in tuition fees that use this pipeline to fund their workforce. These expected repayments and dependencies, albeit not high, illustrate the dependency of the national economy on student loans. If these student loans were waived, the economy would have to restructure and find a way to replace their forecasted contributions. This would result in fiscal instruments such as higher taxes and greater austerity measures being put in place to compensate for the growing deficit. Therefore, fiscal debt resulting from student debt cancellation will slow economic growth because of lower private and government consumption, cuts in other areas of public spending, and reduced investment due to the higher taxes businesses will be required to pay.  

 

Poor precedent for the credibility of debtors (students)

Only 56% of students were expected to repay their loans in full in the fiscal year 2024-2025. In our current economic circumstances, many students struggle to reach repayment thresholds in their earnings, and once they do have interest accruing faster than the repayments they can make. While cancelling the student debt might relieve the stress from current outstanding payments, it holds no power over their future loans – private or public – and their repayment. If student debts are cancelled, it will set a poor precedent for these students' attitudes towards loans, giving the public the impression that government loans are never truly repayable. It may also lead to unintended consequences in the private credit market as financial institutions or lenders may view recent graduates with written off loans as less reliable, leading to tightening of lending criteria or a higher cost of borrowing. Thus, creating the same divide that the cancellation was supposed to eliminate.  

 

Future Progress?

I do concede that student debt negatively impacts career choices, as posited by the opposition. However, these drawbacks are mitigated within the current system in the UK. This model only requires repayment if you earn above a certain level of income, reducing the pressure of career choices for students. Students are required to pay a certain percentage of their income over the respective threshold of the plan they are on. For instance, a person on Plan 1, 2, 4, or 5 is required to pay 9% of their income over the plan’s income threshold. Note, there will be a few people who will choose to go with the route of least resistance and choose whatever mode of employment (or unemployment) gives them the easiest route in paying back this debt. However, I assume that these people will choose this path on both sides of the house – regardless of whether their debts are cancelled or not – and so the impacts of their choice are symmetric. 

It is important to note a further modification to the policy that will result in student debt being paid back while ensuring graduates’ well-being. By keeping repayment thresholds dynamic and not frozen, loan terms can be modified according to the situation of the general economy. Reflecting the rising prices within the economy, increasing income thresholds will allow graduates to have a disposable income relative to their economic situation while repaying their debt. In Addition to this, interest rates should be kept lower than the private lending market, as the government should appreciate the economic return they get in investing in students. These changes will improve public perception of how ‘just’ these loans are and could consequently improve repayment rates. 

Conclusion

Thus, in my argument, I have proven to you that student debt cancellation, while an ambitious move, is economically unjust on the grounds that it leads to fiscal tightening and gives students poor credibility. Furthermore, I discuss how the current system in the UK considers the drawbacks proposed by the opposition, and a modification that might help with public perception of the system. For all these reasons, I urge you to vote for the proposition.  

Jaidev - Opposition 

Student debt cancellation can be economically justified because it removes labour market distortions and strengthens the formation of long-run human capital. The government says that the writing-off of student debt after 25-30 years already signifies a progressive system in which the lowest earners never fully need to repay their debts. The opposition posits that under a status quo in which students graduate around the ages of 21-24 years and work until a retirement age of 66 (in the UK), a mere 15 (student-)debt-free years of earning can result in grossly inefficient economic outcomes. 

 

Career Options 

The first issue with bearing significant student debt is that of debt overhang. When graduates are obliged to make fixed repayments, they become risk-averse in career choices. This affects occupational decisions, funneling talent towards jobs with the highest immediate salaries over jobs that might generate the maximum long-term economic returns. Graduates are forced to prioritise short-term security over a balanced financial approach. Many graduates need to reach the repayment threshold in order to sustain financial independence, yet doing so immediately triggers the start of their loan repayments. This creates a tension at the very moment they are trying to establish themselves, earning enough to live independently while simultaneously becoming liable for student‑loan deductions. This necessity to meet short-term requirements tends to turn them away from jobs with longer career progressions and potentially much higher earnings in the long run, and push them towards employment with shorter contracts (0 hour, etc.) and less job security (hospitality, service, etc.); beholden to a requirement for income security. Labour allocation is shaped by debt and not allocative efficiency. The resulting economic distortion can be avoided by student debt cancellation, which will lead to labour markets reflecting skill, innovation, and comparative advantage. 

 

Human Capital

The second argument for cancellation is that large student debt harms investment in human capital. Higher education generates positive economic externalities, such as higher labour productivity, greater tax revenue, and innovation that benefits society. The prospect of bearing substantial liability in the form of debt for decades can seriously deter capable students (especially those who are risk-averse and/or from lower-income backgrounds) from pursuing higher education and socially beneficial but ambitious and uncertain career paths. This results in a socially inefficient outcome where there is too little education relative to the optimum. By significantly reducing outstanding liabilities, we are increasing the expected net return to education for students. Thereby making higher education an attractive choice for students and governments that will indirectly reap the reward of a highly skilled workforce. 

This logic also extends to talent retention in a globalised economy in which skilled graduates are highly mobile. If debt burdens incentivise graduate migration to higher-paying labour markets, the state loses its return on investment in educational infrastructure. If the state invests in higher education through cancelling student debts, graduates no longer feel the need to emigrate to an economy with higher salaries to repay their debts. The state sees a return on its investment in the form of contribution to the tax base, economic contribution and innovation from better-qualified and higher-earning graduates. Cancellation is a signal of the state’s commitment to the retention of talent. The odds of retaining graduates are enhanced when the state incentivises them to stay and contribute to the economy. Indirectly, this also expands the tax base of the country and contributes to the productivity and innovative capacity of the workforce. 

 

Conclusion

The Government argues that debt cancellation is regressive because graduates earn more on average than non-graduates. However, this comparison ignores the dynamic effects of market distortions whereby income becomes the sole metric on which to weigh employment options. Cancellation strengthens the economy’s productive capacity. The aim of economic policy should not be merely the minimisation of expenditure, but the optimisation of efficient growth by correcting labour distortions and supporting human capital formation. Student debt cancellation can meet that standard if properly legislated and, on those grounds, it is economically justified. 

                                                                        We’ve laid out the arguments. The question remains: where do you stand?

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