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Biden Student Debt Relief Plan Will Have Little Effect on Inflation

Giving 43 million Americans a $300-billion to $600-billion break on their student loans has got to have some impact on the economy, right?

Maybe not, especially when you consider the plan also includes restarting student loan payments after a nearly three-year pause:

Critically, the cancellation of student debt is being paired with a plan to lift the freeze on federal student debt payments, beginning in January 2023. That means many Americans who haven’t had to pay down student loans since March 2020 will have to begin doing so, eating into their cash flows.

Despite fears that Biden’s student debt relief will fuel already-crippling inflation, economists say the combined impact will be minimal on the economy at large.

“The end of the moratorium will weigh on growth and inflation, while the debt forgiveness will support growth and inflation,” Moody’s Analytics chief economist Mark Zandi told CNN. “The net of these cross-currents is largely a wash” [Matt Egan, “What Biden’s Student Debt Plan Will Do to the US Economy,” CNN, 2022.08.24].

According to the White House’s calculations, about 20 million borrowers will be completely freed from their student debt, freeing them to spend more on goods and services each month. Up to 23 million more will get partial forgiveness and have a little more personal budget breathing room. Redefining discretionary income and reducing maximum monthly student loan payments from 10% of discretionary income to 5% will also leave more money in borrowers’ pockets. But restarting student loan payments in January will pull money back from the kitchen table and Main Street.

Plus, that smart President of ours is including income caps on debt relief that will further prevent negative economic impacts:

The inflationary impact would have been larger if Biden did not impose an income threshold on the debt relief or if he heeded calls from some progressives to wipe out $50,000 in student debt.

[Economist Dean] Baker praised Biden’s plan as a “good compromise” that avoided going to extremes.

“It’s helping people out, but not giving away the store,” he said [Egan, 2022.08.24].

President Biden is thus proposing the right plan at the right time to avoid major economic impacts.

20 Comments

  1. Ron Jon 2022-08-26

    Far worse than any inflation risk is the inherent unfairness of shifting one person’s debt obligation on to someone else. It is a slap in the face of everyone who fulfilled their obligation only to now shoulder someone else’s or the person who saved to avoid the debt in the first place. So, bad.

  2. sx123 2022-08-26

    Another unfair policy, inflation or not.
    All of these targeted programs, targeted tax rebates, targeted tax incentives are getting very, very old at this point.

  3. cibvet 2022-08-26

    Repubs consider hypocrisy a badge of honor.

  4. Cory Allen Heidelberger Post author | 2022-08-26

    Ron Jon, did you say that about the PPP loan forgiveness?

    I have no student loan debt. I’m paying for this student debt relief. I don’t feel slapped. Anyone else?

    At least Ron Jon agrees that the inflation impact is negligible.

  5. Cory Allen Heidelberger Post author | 2022-08-26

    SX123, how is student debt relief any more unfair than food stamps, which relieve poor people but not you or me of some grocery costs? Or Medicaid and Medicare, which shift the costs of health care for certain people to the public at large? Are you saying that any social assistance program that provides benefits based on low-income status or age or other factors that limit the assistance to only certain subpopulations in need are inherently unfair and should be abolished?

  6. grudznick 2022-08-26

    Buncha whiney freeloaders. Mr. Uncle Joe Biden sure is creating an entitlement society which will cripple America for a generation.

  7. Edwin Arndt 2022-08-26

    I thought student debt was considered an investment. If college debt seems
    insurmountable then college wasn’t worth what it cost.

  8. Ron Jon 2022-08-26

    Cory. I am didn’t say the inflation risk was negligible, you said I said it. The value of hard work, saving, and being responsible are being diminished and that is more important than the inflation rate. If you can’t find a job in today’s hot job market to pay off your loan, then something is wrong. Progressives purport to look out for the little guy but are seemingly OK with blue collar workers footing the bill for those who chose higher education and willingly took on debt.

  9. bearcreekbat 2022-08-26

    It is a mistake to overlook the fact that people that obtain guaranteed student loans and use these funds to pursue a higher education are providing a substantial benefit to society as a whole. Most folks recognize that a better educated population benefits everyone. Thus, the policy of guaranteeing student loans isn’t simply a policy to help those in need, it is a policy that pays substantial rewards to our society as a whole. Forgiving a portion of student loan debt to those that have the least ability to repay the debt is not much different than providing a tuition free education to people in grades 1-12 and is clearly in the national interest. If we are unwilling to fund advanced education beyond high school for all, then providing financial assistance to those in need so they can obtain some degree of advanced education is a viable alternative to improve the skills of our population and add to the quality of all lives. Forgiving that debt requires a relatively miniscule amount of our national resouces and really harms no one at all, while continuing to encourage individuals to seek higher education. Loan forgiveness benefits individuals and families continue to contribute to society as a whole.

  10. Edwin Arndt 2022-08-26

    I fear that forgiving student loan debt as a matter of course will result in colleges having
    no incentive to control costs. In North Dakota colleges and universities come to every
    legislative session with their hands out, with a list of things they absolutely must have.

  11. larry kurtz 2022-08-26

    Ag subsidies aren’t self-reliance; they’re moral hazard.

    When the former White House occupant was handing out farmer funny money by the billions there was nary a peep from the Heartland. But when Congress tries to dole out a pittance in the form of loan forgiveness to minorities who were discriminated against when seeking their piece of the federal farm program, that’s a bridge too far. Socialism for me but not for thee, it appears.

    https://www.inforum.com/opinion/columns/mcfeely-white-farmers-are-being-discriminated-against-billions-in-subsidies-say-otherwise

  12. P. Aitch 2022-08-26

    How is it fair that homeowners get to deduct their mortgage interest when home renters get no such tax break?
    That’s “white welfare” if there ever was such a program.
    College graduates’ default on their school loans at 8%/
    College dropouts’ default at 60%.
    That’s a double penalty. i.e. Not getting the higher wages every month and paying the super high interest loan payments every month.

  13. Neal 2022-08-26

    Of course it won’t have any impact on inflation. Just like the trillions upon trillions in handouts before this didn’t impact inflation. Meanwhile, inflation is at 8% — but surely that’s just a coincidence, and has nothing to do with printing and pumping trillions of dollars into the economy. Move along, nothing to see here.

  14. Cory Allen Heidelberger Post author | 2022-08-26

    Neal, you seem to be ignoring the main point that the economists are making. Yes, adding money to the economy can have stimulatory and inflationary effects. But this plan also takes money out of the economy that isn’t being taken out right now. Cancel some debt, but restart payments on remaining debt, and the effects mostly wash each other out.

  15. Cory Allen Heidelberger Post author | 2022-08-26

    Ron Jon, I assumed that since you wanted to pass over the point of this post and turn to the class warfare stuff that you were conceding that the main point of this article was correct. You continue to ignore that analysis with your abstractions and talking points, so I take it you agree that this specific plan will not have significant inflationary effects.

  16. LCJ 2022-08-26

    Why is this directed at college students and not trade and vocational schools like I graduated from?
    This plan is obviously an attempt to buy votes from a certain group of people who make up to 125,000 yr. and leaving students of color in the ditch. Really pathetic to support this as more Democrats are coming out to express opposition to this pathetic piece of authoritarian crap.

  17. DaveFN 2022-08-26

    “According to the National Center for Education Statistics, the average cost for tuition and fees in the U.S. for the year U.S. Sen. John Thune graduated was $2,344 from Biola University.

    Biola University in California, now estimates its cost for tuition is over $44,000 per year, not including room and board or books.

    U.S. Sen. Mike Rounds graduated with his undergrad degree from South Dakota State University in 1977. The national annual cost for tuition, room and board that year was $2,400.

    SDSU estimates that cost is now over $17,000 a year.”

    Top State Republicans Criticize Biden Student Loan Plan
    https://listen.sdpb.org/2022-08-25/top-state-republicans-criticize-biden-student-loan-plan

  18. O 2022-08-26

    The only element I don’t like about this is that it ignores/leaves the money in the pockets of the manipulators who were responsible for the debt crisis in the first place. They got the loan payments and made off in the dark of night no questions asked. The college cost explosion and where that money is going are scandalous — yet typical of a “free market” running wild with a lack of regulation and no oversight.

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