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Canceling student-loan debt could have limited positive impact and introduce 'moral hazard' that would make the situation worse, Moody's warns

Canceling student-loan debt could have limited positive impact and introduce 'moral hazard' that would make the situation worse, Moody's warns
Jacquelyn Martin/AP



Erasing student-loan debt could create a "moral hazard" that would weaken the effect of any economic stimulus, Moody's Investors Service said in a recent report.




Outstanding student-loan debt is $1.5 trillion, equal to 6.9% of US gross domestic product.




Canceling student-loan debt could hurt the US government because it collects revenue on student loan payments, the report said.




Still, Moody's acknowledges the "significantly higher burden" of student loan debt in the US today.




Read more on Business Insider.




Erasing outstanding student-loan debt could have a muted positive impact on the economy, and also create a "moral hazard," according to a Friday analysis by Moody's Investors Service.
In the last decade, outstanding student loan debt has more than doubled, and now stands at $1.5 trillion — equal to 6.9% of US gross domestic product, the broadest measure of the US economy, the report said. That's made debt forgiveness a hot-button issue and led to proposals from Democratic presidential candidates Bernie Sanders and Elizabeth Warren to cancel some or all of Americans' student loan debt.
But the potential benefits of erasing student loan debt would largely depend on the details of any legislation and how it is funded, wrote the team of analysts led by William Foster.
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