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UK economist highlights moral hazard concerns around student loan forgiveness

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Kentucky economists are considering the ramifications of the Biden Administration’s Student Loan Forgiveness Plan. Under the plan, up to $20,000 in student loans could be erased for borrowers.

Michael Clark is Director of the Center for Business and Economic Research at the University of Kentucky. In an interview with WEKU’s Eastern Standard, Clark said he and other economists are concerned about a moral hazard when this debt is forgiven.

“It kind of creates a situation where we've provided a signal that we might be willing to do this in the future. And we might actually encourage greater levels of borrowing rather than solving the affordability issue associated with education,” said Clark.

Clark said the plan calls for eliminating one point six trillion dollars of debt.

“But that's not going to basically result in $1.6 trillion in additional spending immediately, right, you know, people are paying a little bit of that over time. The stimulus effect is not nearly as large as the total amount of debt that's going to be occurring, it's gonna be spread out over a long period of time, basically,” said Clark.

You can hear more during Eastern Standard, Thursday at 11 a.m. and 8 p.m.

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Samantha is WEKU's All Things Considered Host and also reports on news of interest in the commonwealth. Sam is a graduate of Morehead State University and worked for MSU's Public Radio Station WMKY.
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