Importantly, cancellation of student debt is paired with plans to unfreeze federal student debt This means that many Americans who haven’t had to pay off their student loans since March 2020 will have to start paying them off, eating up cash flow.
Despite fears that Biden’s student debt relief will accelerate already devastating inflation, economists say the compounding effects will have minimal impact on the economy as a whole.
“The end of the moratorium will weigh on growth and inflation, while debt forgiveness will support growth and inflation,” Mark Zandy, chief economist at Moody’s Analytics, told CNN. “These cross-current nets are largely washed away.”
Together, Moody’s estimates that these effects will reduce real GDP by 0.05 percentage points in 2023, unemployment by 0.02 percentage points, and inflation by 0.03 percentage points. So it’s a very small effect.
“We are not talking about raising or lowering inflation by one percentage point or half a percentage point. We are talking about really small impacts,” said the Center for Economic Policy Research. Founder Dean Baker said. CNN phone interview. “But for individuals, this makes a big difference. It makes more than half of borrowers’ debt go away. That’s a big deal.”
Tens of millions of borrowers affected
A typical college student with loans graduates with nearly $25,000 in debt, according to a Department of Education analysis cited by the White House.
According to the White House, up to 43 million borrowers will receive relief from Biden’s student loan plan, including completely eliminating the remaining balances of about 20 million borrowers.
If Mr. Biden didn’t impose an income standard on debt forgiveness, or listened to calls from some progressives to wipe out $50,000 student loans, the impact of inflation would be negligible. would have been even bigger.
Mr. Baker praised Mr. Biden’s plan as a “good compromise” that avoided going to extremes.
“It’s about helping people, but not letting go of the store,” he said.
$300 billion price tag
Of course, canceling student loans comes at a cost. And when deficit reduction suddenly becomes a bipartisan trend in Washington, the cost will be borne by taxpayers.
According to Penn Wharton Budget Model estimates this week, one cancellation of $10,000 for each borrower earning less than $125,000 would cost the government about $300 billion. (The Penn Wharton model did not include the cost of canceling Pell Grant recipients’ up to $20,000 in student debt).
$300 billion isn’t a lot for a $25 trillion economy, but the cost of student debt forgiveness will offset the federal deficit cuts from the just-passed Inflation Reduction Act.
“All deficit cuts will be wiped out,” Mark Goldwain, senior vice president and senior policy director for the Committee on a Responsible Federal Budget, told CNN’s Poppy Harlow.
Note that the White House has welcomed the deficit reduction aspect of the Inflation Control Act as a key inflation measure. And this marked a major shift after years of both parties adding to America’s mountain of debt to fight the Covid-19 pandemic.
Even Jason Fuhrman, chairman of former President Barack Obama’s Council of Economic Advisers, has doubts about Biden’s plan.
Still, Moody’s Zandi said this is “a big positive deal for probably nearly 40 million mostly low- and middle-income Americans, but [a] A small negative deal for all American taxpayers. “
“sending the wrong message”
Beyond the economic impact, Biden’s plan has raised questions about fairness. Because it only helps those who were lucky enough to go to college.
Democratic Ohio Senate candidate Tim Ryan said Biden’s decision on student loans “sent the wrong message to the millions of Ohioans who work just as hard to earn a living and don’t get a degree.” will be sent,” he said.
“Instead of allowing six-figure earners to take out student loans, we should work to ensure that all Americans have an equal opportunity,” Ryan said.
Citing analysis from the Department of Education, the White House said nearly 90% of the relief money goes to those earning less than $75,000.
Student debt forgiveness comes too late for borrowers who worked for years to pay off their loans, only to now see others clearing their debts.
“I take it very seriously,” Baker said of fairness concerns. $10,000 is a good number.”
the real problem continues
Cleaning out student loan debt, no matter the amount, won’t address the underlying problem. College tuition is too expensive.
According to Moody’s Analytics, between 2000 and 2021, college tuition has risen more than twice as fast as overall inflation. This is despite a slowdown in tuition price increases during Covid.
According to Moody’s, the basket of commodities, as measured by the consumer price index, will be 57% more expensive in 2021 than in 2000, and college tuition has risen 167%.
I don’t see how eliminating some of the student debt would solve that problem. Some, including former Treasury Secretary Larry Summers, have warned that debt relief is a possibility. Contributed to higher tuition fees.
“Costs are out of control. It’s ridiculous that people have to borrow so much and then struggle to pay it back,” said Baker. “The issue is unresolved.”
Source: www.cnn.com
