The White House is expected to announce a plan to cancel student debt

President Joe Biden is expected to announce his student debt relief plan on Wednesday, according to multiple reports.

While the details have yet to be confirmed by the White House, the Biden administration is reportedly announcing that student debt payments – which have been suspended multiple times since the start of the Covid-19 pandemic, with the latest pause planned to expire on August 31 — will continue to be suspended for at least another four months, until the end of the year.

In addition, the White House may announce that the federal government will forgive some amount of student loan debt for those with incomes below a certain threshold, with the administration leaning toward at least $10,000 in debt forgiveness per student loan borrower, limited to those incomes under $125,000 per year.

Administration officials and their allies are still debating whether to proceed with the cancellation and, if they do, how much debt to write off and what income limits would apply, the Washington Post’s Jeff Stein and Danielle Douglas-Gabriel report.

Cost and inflation concerns: As we told you yesterday, many mainstream economists oppose the idea of ​​canceling student debt, partly because of the fiscal cost and partly because of the potential for increased inflationary pressures on the economy.

On Tuesday, the Penn Wharton Budget Model released an analysis of different student debt relief scenarios and estimated that forgiving $10,000 of debt for those earning less than $125,000 would cost about $330 billion over 10 years, with the vast majority of the cost — $298 billion — comes in the first year. Increasing the forgiveness amount to $50,000 per borrower with the same income threshold would raise the cost to $933 billion over 10 years.

Skipping the means test adds to the cost, but not as much as you might think. Eliminating up to $10,000 per borrower with no income limit would cost $344 billion over 10 years, while $50,000 in debt relief would cost about $979 billion.

Regarding inflation, some economists argue that, in addition to high costs, debt cancellation will worsen inflation by freeing up money from debtors. “The Inflation Reduction Act saves maybe $300 billion in the first 10 years. If we cancel $10,000 in debt and just extend the pause for a few months, we’re going to be about that much in terms of new costs,” Marc Goldwein of the fiscally conservative Committee for a Responsible Federal Budget told CNN. Deficit reduction will be eliminated. At the same time, we will probably do more to raise inflation than debt cancellation than any reduction in inflation from the Deinflation Act.”

Advocates push back: Although mainstream economists seem fairly united in their opposition to widespread student debt forgiveness, the idea has many supporters on the left — some of whom argue that debt forgiveness would not increase inflation and could even be financially beneficial.

Economist Heidi Shierholz of the liberal Economic Policy Institute recently he argued that student debt forgiveness can’t add to price pressures because loan payments have been suspended for more than two years, so any inflationary effects from borrowers spending their loan payments on other things have already happened. And if the administration relies on means-testing to limit debt write-offs, loan payments will continue for those who earn too much to qualify, possibly proving a modest deflationary effect.

According to economists Mike Konczal and Alí Bustamante of the liberal Roosevelt Institute, canceling student debt will have little effect on inflation because much of the money will be saved by borrowers rather than spent. “Student debt cancellation will increase people’s wealth,” they write. “This is a time when people are building strong financial reserves. … as the Fed’s annual Survey of Household Decision Making found, 2021 saw an increase in households with a three-month emergency fund across the income distribution. These are positive developments that will cushion any further impact on spending from debt relief.”

In any case, whether inflationary or not, the effects on the price level are quite small in most analyses. “Am I missing something, or are all the predictions of the inflationary effects of $10K in student debt forgiveness — by both proponents and detractors — too small in either direction?” The Post’s Jeff Stein asked on Twitter.

Questions of justice: Aside from all the questions about the potential economic and fiscal implications, for many people, the issue comes down to a question of justice. Some of those who have already paid off their loans argue that blanket forgiveness is unfair since they worked so hard to clear their debts. And those who never went to college for financial reasons or who attended less expensive community colleges report a similar view.

But arguments about fairness cut both ways. Some of those burdened with student loans say being held responsible for decisions they often made as ill-informed teenagers is both unfair and financially damaging, as years of student loan payments limit their ability to save and build their own. households.

On Wednesday, we expect to see how the Biden administration decides to proceed on the matter.

Do you like what you read? Subscribe to ours free newsletter.

Leave a Reply

Your email address will not be published.