[Editorial] Debt forgiven, then forgiven again: Debt write-offs that fuel moral hazard

As the government strengthens its policy of debt relief, concerns over moral hazard are also growing. The current administration's financial policy is based on the principle of inclusive finance. From this perspective, debt adjustment can reduce the social costs arising from delinquency and debt collection. It can also help people burdened by debt return to economic activity. However, there are growing concerns that the policy's side effects could outweigh these benefits. One notable issue is that nearly 30,000 people have reapplied for debt adjustment this year.
According to the office of Lee Jong-wook, a People Power Party lawmaker on the National Assembly Planning and Finance Committee, 27,864 people reapplied for debt adjustment from January through August this year. That figure represents 82.6% of the 33,718 people who reapplied during all of last year. At this pace, the total is expected to surpass last year's figure by the end of the year. The primary purpose of debt forgiveness is to help people rebuild their lives. However, if people who received debt relief this year apply again, the structural limitations of the current debt adjustment system must be examined closely.
Fundamentally, it is obvious that more applicants will flock to the program if eligibility is expanded and the threshold for reapplying after receiving debt relief is lowered. Such benefits could create moral hazard and undermine the purpose of helping financially vulnerable people. If expectations spread that the government will forgive debts, the willingness to repay will weaken, and people may find it easier to take on new debt.
If the government wipes away financial debts incurred by individuals, the burden will fall entirely on those who have diligently repaid their loans. Those who have continued paying down principal and interest will inevitably feel a deep sense of frustration. If this continues, it could trigger broader social debates over fairness.
Of course, interest-rate conditions at home and abroad have recently shifted toward higher rates. As interest rates rise overall, households with large loans will face higher interest costs and an even heavier financial burden.
Clearly, proactive measures are needed to address the financial risks faced by ordinary people in an era of high interest rates. However, the shortsighted policy approach of assuming that indiscriminate debt forgiveness will reduce financial debt must be abandoned.
Rather than relying primarily on debt relief, the government should adopt an approach closely linked to programs that help people return to economic activity. The fact that debt continues to accumulate even after it has been wiped away is largely attributable to income falling short of expenses. That is why the policy of providing immediate debt relief is criticized as "a stopgap measure." In addition to debt relief, the government should develop multifaceted support, including income-linked programs.
The process of identifying those who genuinely need debt adjustment must also be handled carefully. Debt forgiveness should be provided only where it is truly necessary, following strict screening.
In particular, people who repeatedly apply for debt forgiveness should be required to undergo repayment-capacity assessments and receive linked income and employment support. Policy trust can be built only if the perception that diligent borrowers are being disadvantaged does not take hold.