According to reports, President Joe Biden is seriously considering forgiving many student loans, and a move on the matter is expected in the next several weeks. However, some analysts warn that inflation would worsen with a sweeping cancellation of student loans.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget (CRFB), said debt cancellation may be an appealing political talking point, “but it is not good policy.”
“It is costly, inflationary, poorly targeted, and fails to address the root problems in our higher education financing system,” MacGuineas said in a statement Thursday. “Forgiving $10,000 per person of debt would cost as much as universal pre-K or a full extension of the expanded ACA subsidies.”
“Either the President is serious about reducing deficits and getting inflation under control, or he is not. The White House can’t have it both ways,” MacGuineas added. “We need to be focusing on a serious and effective agenda that prioritizes sound policies, not poorly targeted political giveaways.”
A February report from the CRFB stated that “canceling all $1.6 trillion of student debt would increase the inflation rate” between 0.1% and 0.5% within a year.
The report did find that total student debt cancellation could help the economy by increasing “household consumption by $70 to $95 billion.”
Still, it noted that the current U.S. economy would not be able to sustain the spike in household consumption given “elevated disposable income, strong balance sheets, lingering supply constraints, and other factors.”
However, Biden has not promised to wipe out all student debt since taking office. Before he was elected, Biden said he planned to forgive $10,000 in student debt for each borrower. According to an analysis published by the Federal Reserve Bank of New York last week, that would amount to about $321 billion in federally backed loans being canceled.
Canceling $10,000 per borrower has the support of the Congressional Hispanic Caucus, according to an April 25 CBS News report.
Biden responded to the caucus, “You’re going to like what I do on that.”
In early April, the president extended the moratorium on federal student debt repayment until August 31. On April 28, Biden said he was exploring “some debt reduction.”
At a news conference, Biden said, “I have no plans to reduce our debt by $50,000,” according to the New York Times. “However, I’m determining whether or not there will be extra debt forgiveness, and I’ll have a solution on that within the next couple of weeks,” he said.
That same day, the Education Department announced that $238 million in student loans for a beauty school’s students were forgiven based on borrower defense findings. The announcement also said the Biden administration had canceled more than $18.5 billion in student loan debt for more than 750,000 borrowers since taking the White House.
The administration is reportedly mulling over limiting student debt relief to people who earn less than $125,000 or $150,000 annually.
Jessica Anderson, executive director of Heritage Action, the political sister organization to conservative think tank the Heritage Foundation, claimed that canceling student debt “would raise inflation by up to 20%” on Fox News.
“Make no mistake: this is a handout to wealthy, educated voters that will come at the expense of higher prices for food, gas, and energy for working American families who won’t see a dime of relief — not to mention higher taxes,” she continued. “This is an absurd election-year gimmick that punishes most Americans.”
Manhattan Institute senior fellow Brian Riedl believes the impact that canceling student debt would have on inflation is not so severe.
“If the president tries to permanently cancel a large portion of student debt, that may add perhaps 0.3% to this year’s inflation rate. Again, not helpful, but not a major driver of inflation,” Riedl said.
The latest Bureau of Labor Statistics data showed that the U.S. annual inflation rate surged to 8.5% in March, the most significant spike since December 1981.
