As inflation remains near record high levels, President Biden unveiled a plan on Wednesday to cancel $10,000 in student loan debt for borrowers making less than $125,000 per year.
According to a press release from the White House, the “Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education, and up to $10,000 in debt cancellation to non-Pell Grant recipients. Borrowers are eligible for this relief if their individual income is less than $125,000 ($250,000 for married couples).”
The Biden administration is additionally extending the pause on federal student loan payments until January 2023 and capping “monthly payments for undergraduate loans at 5% of a borrower’s discretionary income.”
The plan is expected to push inflation even higher, while also disproportionately benefitting higher income individuals. According to a nonpartisan analysis from the University of Pennsylvania’s Wharton School, the plan will cost around $300 billion in 2022 and $330 billion if it continues over the standard 10-year budget window. The analysis also found that about one-fourth of the debt forgiven will benefit Americans in the lowest two income quintiles.
Biden’s announcement comes despite warnings from economists that the plan would increase already record high inflation. According to top Democrat economist Larry Summers, who served in the Clinton and Obama administrations, the plan “raises demand and increases inflation.”
“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 wrote in a Twitter thread on Monday. “Every dollar spent on student loan relief is a dollar that could have gone to support those who don’t get the opportunity to go to college.”
“Student loan debt relief is spending that raises demand and increases inflation. 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,” he continued. “The worst idea would be a continuation of the current moratorium that benefits among others highly paid surgeons, lawyers and investment bankers.”
“If relief is to be given it should not set any precedent, it should only be given for the first few thousand dollars of debt, and for those with genuinely middle class incomes,” Summers added.
