Student Loan Forgiveness: Details of the Biden Administration Controversy
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Student loan forgiveness |
The White House is still considering the details of the student loan forgiveness announcement, and it's unclear how far President Joe Biden might go to pay off student loans.
Here's what he needs to know and what it means for his student loans.
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According to the Washington Post, the White House has not finalized details on broader student loan forgiveness. (Other briefing notes could hit student loan forgiveness as soon as tomorrow.) With only days left for the student loan payment moratorium to expire, Biden could announce the possibility of large-scale student loan relief for borrowers student loans resume federal student loan payments on September 1. 2022. Expected to start. Biden is considering whether to enact large-scale student loan forgiveness for more than 40 million student loan borrowers. So what is the delay?
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As the Washington Post points out, there are several reasons the Biden administration is carefully weighing a decision to cancel comprehensive student loans.
1. Student Loan Forgiveness May Increase Inflation
Inflation is at a 40-year high and the last thing the Biden administration needs is the idea that broad student loan forgiveness will increase inflation. However, former US Treasury Secretary Larry Summers, a Democrat, has argued that large-scale student loan forgiveness could fuel inflation. If student loan borrowers have more disposable income, they can spend that money in the economy, increasing demand and potentially driving up prices. Republicans in Congress also say mass student loan write-offs will fuel monstrous inflation. The White House disagreed, saying any large-scale student loan relief would have little, if any, impact on inflation.
2. Student loan cancellation can be perceived as a reallocation of resources
The Biden administration is weighing the idea that large-scale student loan forgiveness constitutes wealth redistribution. While other policies create a redistribution of wealth, the logic here is slightly different. With broad student loan forgiveness, the concern of Republicans and other critics of broad student loan forgiveness is that broad student loan forgiveness redistributes income to high-income individuals. How is that possible? On average, college-educated student loan borrowers, even facing high student loan payments and an uncertain economy, earn higher incomes than other Americans who didn't go to college or couldn't afford it.
3. Americans without student loans may not want to pay off other people's student loans
According to the latest student loan debt statistics, there are 45 million borrowers who collectively owe $1.7 trillion in student loans. There are approximately 250 million American adults, which means that student loan borrowers represent approximately 20% of the adult American population. This means that about 80% of Americans do not have student loans: they have never taken out student loans or have already paid off their student loans. With the massive cancellation of student loans, these Americans would effectively be asked to pay for other Americans' college education.
Student Loan Forgiveness: Political Implications
Biden will also consider the political implications of large-scale student loan write-offs. The midterms are November 8 and Democrats could lose control of Congress In the wake of the Covid-19 pandemic and an uncertain economy, advocates of large-scale student loan discharge want a financial lifeline. They want Biden to fix a broken student loan system that has created inequality. Biden also has to consider the backlash from some moderates, independents, and Republicans who say canceling student loans would cause inflation, cost $400 billion, and hurt working Americans who didn't go to college or don't have student loans.