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 poised to announce that student debt payments — which have been suspended multiple times since the beginning of the Covid-19 pandemic, with the latest pause scheduled 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, as the administration says inclined to at least $10,000 in debt forgiveness per student loan borrower, limited to those with incomes below $125,000 per year.

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

Cost and Inflation Concerns: As we told you yesterdaymany mainstream economists oppose the idea of ​​student debt forgiveness, due in part to the budgetary cost of doing so and in part to the potential for increasing inflationary pressures in the economy.

On Tuesday, Penn Wharton’s budget model released analysis different scenarios for student debt relief and estimated that forgiving $10,000 of debt for those earning less than $125,000 would cost about $330 billion over 10 years, with most of the cost — $298 billion — coming in the first year. Increasing the forgiveness amount to $50,000 per borrower with the same income limit would increase costs to $933 billion over 10 years.

Bypassing the means test raises costs, but not as much as you might think. Eliminating up to $10,000 per borrower without the income limit would cost $344 billion over 10 years, while forgiving $50,000 in debt would cost about $979 billion.

As for inflation, some economists argue that, in addition to coming at a high cost, debt forgiveness will only worsen inflation by freeing up spending money among debtors. “The Inflation Reduction Act saved perhaps $300 billion in the first 10 years. If we canceled $10,000 of debt and just extended the pause by a few months, we’d get to about that much in terms of new spending,” Mark Goldwine of the fiscally conservative Committee for a Responsible Federal Budget told CNN. “All deficit reduction will be eliminated. At the same time, we will likely do more to increase inflation from debt cancellation than any reduction in inflation from the DCA.

Defenders repel: Although establishment 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 be economically beneficial.

Economist Heidi Schirholz of the liberal Economic Policy Institute recently argued that student debt forgiveness cannot increase 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 occurred. And if the administration relies on means testing to limit debt forgiveness, loan payments will resume for those who earn too much to qualify, potentially proving a modest deflationary effect.

According to economists Mike Konzal and Ali Bustamante of the liberal Roosevelt Institute, canceling student debt would not have much of an effect on inflation because much of the money would be saved by borrowers rather than spent. “Cancelling student debt will increase people’s wealth,” they write. “This is a period when people are building strong economic buffers. … as the Fed’s annual survey of household economic decision-making found, 2021 sees an increase in households that have a three-month emergency fund in their income distributions. These are positive developments that will blunt any further cost impact from debt cancellation.”

In any case, inflationary or not, the effects on the price level are quite small in most analyses. “Am I missing something, or are all estimates of the inflationary effects of $10K in student debt cancellation—by both supporters and critics—very small in both directions?” Post’s Jeff Stein he asked on Twitter.

Justice questions: In addition to all the questions about the potential economic and fiscal effects, for many people the issue comes down to a question of fairness. Some of those who have already paid off their loans argue that blanket forgiveness is unfair because they have worked so hard to clear their own debts. And those who never went to college for financial reasons or who attended less expensive community colleges make a similar point.

But arguments for justice cut both ways. Some of those burdened with student loans say holding people accountable for often ill-informed decisions they made as teenagers is both unfair and economically harmful, as years of student loan payments limit their ability to save and create their own independent households.

On Wednesday, we expect to see which way the Biden administration decides to take on the matter.

Do you like what you read? Sign up for ours free newsletter.

Source link

Leave a Reply

Your email address will not be published.