Expensive and Inflationary: Biden’s Plan to Cancel Student Loan Debt

The Biden-Harris administration is reportedly “leaning toward” canceling hundreds of billions of dollars in federal student loan debt. The unilateral action — which may not be legal — would cost between $300 billion and $980 billion, depending on the specifics of the proposal. Most of the benefit would go to higher-income college graduates, which one liberal economist, Jason Furman, described as “redistribution [of wealth] from the middle to the upper-middle”.

Washington Post: The White House’s close allies are feuding over whether the administration should cancel up to $10,000 in student debt for millions of American borrowers, as President Biden nears a decision after months of delays. . . 

They face an Aug. 31 deadline, which is when loan payments are set to resume after a pandemic-driven pause. Internal White House discussions have centered on temporarily extending that pause and simultaneously canceling $10,000 per borrower for those below an income threshold. . . Another person familiar with the talks said $10,000 is among the options being considered.

Economists and consumers alike are concerned that canceling student loan debt would exacerbate inflation. Sixty percent of respondents to a CNBC poll said they were “concerned that student loan forgiveness will make inflation worse.” The White House also faces pushback from Larry Summers, a top economist in the Obama administration.

New York Post: Summers, a former top economic official in the Clinton and Obama administrations, called for caution as reports swirl that President Biden is close to making a decision on whether to extend the ongoing payment moratorium for student loans – and potentially wipe some debt clean.

“I hope the Administration does not contribute to inflation macro economically by offering unreasonably generous student loan relief or micro economically by encouraging college tuition increases,” Summers said in a series of tweets on Monday. . .

“Student loan debt relief is spending that raises demand and increases inflation,” Summers added. “It consumes resources that could be better used helping those who did not, for whatever reason, have the chance to attend college. It will also tend to be inflationary by raising tuitions.”

Bottom Line: Canceling student loan debt would make inflation worse, benefitting higher-income college graduates at the expense of working-class families.