What I gather the general Neo-Keynesian assumption is by freeing up loans (whether it be student debt or mortgage loans), it should free up household income, which should allow for at least necessities to be paid for, or if you're better off, allow you to buy luxuries you otherwise wouldn't of bought.
Basically reduction of debt should increase demand and potentially consumption, thus improving economic performance.
I'm not sure as to the counterargument, but I suspect the counterargument is it shoots confidence in the foot and makes the financial sector less likely to lend for anything.
Which strikes me as odd, as unless you have a moral objection to being paid by the government, any money is good money.
Though I think part of the financial sector's objection to such payments right now is so many loans are underwater, they'd be paid pennies on the dollars spent for the loans/mortgages in the first place, thus netting losses.
Many were increasingly of the opinion that they'd all made a big mistake in coming down from the trees in the first place. - Douglas Adams