Experts warn that if President Biden removes significant tracts of student debt, the US inflation situation would only become worse.
Maya MacGuineas, head of the Committee for a Responsible Federal Budget (CRFB), cautioned that while canceling student debt is a popular political talking topic, it is bad policy.
It’s expensive, inflationary, and poorly targeted, and it doesn’t solve the underlying issues with our higher education funding structure. Full debt forgiveness would be a big handout to wealthy physicians and attorneys, exacerbate our inflation problem, and cost almost as much as the 2017 tax cuts combined.
“Even partial debt cancellation would be costly, regressive, and inflationary,” she wrote, “costing as much as universal pre-K or a full extension of the expanded ACA subsidies.”
“Either the President is serious about reducing deficits and controlling inflation, or he isn’t.” “We can’t have it both ways,” MacGuineas continued, “so we need to focus on a serious and effective agenda that prioritizes sound policies over poorly targeted political giveaways.”
According to Jessica Anderson, executive director of Heritage Action, a political sister group of the Heritage Foundation, erasing student debt will increase inflation by up to 20%.
Senior scholar Brian Riedl of the Manhattan Institute was less convinced about the inflationary consequences of debt cancellation, though he still believes it is terrible economic policy.
The federal government would erase all student debt for $1.6 trillion, nearly as much as Biden’s famous $1.9 trillion American Rescue Plan, while also strengthening household balance sheets by the same amount and reducing repayments by $80 billion in the first year.
Even a little increase in inflationary pressures might exacerbate existing inflation dynamics, raising the risk of a wage-price spiral and complicating the Federal Reserve’s efforts to re-anchor inflation expectations around its current goal.
When Fox News’ Jacqui Heinrich asked about concerns about inflation rising as a result of the potential debt cancellation, White House press secretary Jen Psaki responded that the president is looking into the impact of student loans and that helping working families is more important than tax cuts for millionaires, billionaires, and corporations.