President Joe Biden has frequently postponed the due dates for those who took out school loans after assuming office in January 2021. Biden may have taxpayers pay the final cost of the loans under the pretext of forgiveness if pressure from his left, led by Democratic Senators Bernie Sanders and Elizabeth Warren. It’s anticipated that he will on Wednesday.
Cancel student debt. All of it.— Bernie Sanders (@BernieSanders) April 5, 2022
Larry Summers, the director of the Obama National Economic Council, cautions that the change may worsen inflation. Summers further stated that if the American Rescue Plan was only approved by Democrats in March 2021, it would massively increase inflation. These cautions were disregarded, and today’s inflation rate is 8.5%.
Not to add that student loan forgiveness shifts the cost of repayment from rich degree holders to the working class without a college education. Additionally, they are worried about 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.— Lawrence H. Summers (@LHSummers) August 22, 2022
The White House acknowledged that the decision would have conflicting effects when it made the announcement on Wednesday. On the one hand, it would lower the total amount of family debt and may give more purchasing power. On the other hand, it provides a schedule for resuming payments that have been stopped for longer than two years.
NEW: As Biden weighs a student debt decision, Penn Wharton Budget Model has released its analysis of student loan forgiveness, estimating it will cost bet. $300-$980 billion, w/majority of relief going toward borrowers in top 60% of earners. More on the @TheTerminal.— Nancy Cook (@nancook) August 23, 2022
According to Michael Pugliese, an economist at Wells Fargo & Co., the overall effect of increased savings and decreased debt might increase inflation by 0.1 to 0.3 percentage points. According to Bloomberg Economics, there is a chance that the increase might be as much as 0.2 percentage points in 2019. Consumer price index data from last month showed that overall inflation was 8.5%, which is close to a 40-year high.