Biden forgives millions of student loans; critics fear inflation

Date:

WASHINGTON, Aug. 24 (Reuters) – President Joe Biden said Wednesday that the U.S. government will forgive $10,000 in student loans for millions of debt-ridden former college students, fulfilling a promise he made in the 2020 White House campaign.

The move could boost support for his fellow Democrats in November’s congressional elections, but some economists said it could fuel inflation and some Republicans in Congress questioned whether the president had legal authority to discharge the debt. to scold.

Debt cancellation will free up hundreds of billions of dollars in new consumer spending that could target home buying and other major spending, according to economists who said it would add another wrinkle to the country’s fight against inflation.

Register now for FREE unlimited access to Reuters.com

The actions are “for families who need them most — workers and middle-class people who are being hit particularly hard during the pandemic,” Biden said during remarks at the White House. He promised that high-income households would not benefit, addressing a central criticism of the plan.

“I will never apologize for helping working Americans and the middle class, especially the same people who voted for a $2 trillion tax cut that primarily benefited the wealthiest Americans and the largest corporations,” Biden said, referring to a Republican tax cut passed under former President Donald Trump.

Borrower balances have been frozen since the start of the COVID-19 outbreak, and as of March 2020, no payments have been required on most federal student loans. Many Democrats had insisted that Biden forgive as much as $50,000 per borrower.

Republicans have been mostly against student loan forgiveness, calling it unfair because it will disproportionately help people earn higher incomes.

“President Biden’s socialism for student loans is a slap in the face to every family who has made sacrifices to save for college, every college graduate who paid off their debt, and every American who chose a particular career path or volunteered to serve in our armed forces. to avoid going into debt,” Senate Minority Leader Mitch McConnell said Wednesday.

The government has yet to determine the price tag for the package, which will depend on how many people apply for it, White House domestic policy adviser Susan Rice told reporters. Student loans obtained after June 30 of this year are not eligible, she said.

White House press secretary Karine Jean-Pierre told reporters that the government has legal authority to forgive the debt under a law permitting such action during a national emergency such as a pandemic. Earlier, Republican US Representative Elise Stefanik had called the plan “reckless and illegal”.

U.S. college tuition is significantly higher than most other wealthy countries, and U.S. consumers have $1.75 trillion in student loans, most of which is federally owned. Biden said other countries could bypass the United States economically if students don’t get economic aid.

PANDEMIC BREAK, PELL GRANTS

The government is extending a COVID-19 pandemic-related pause on student loan repayments until the end of the year, while canceling $10,000 in student debt for single borrowers with annual incomes of less than $125,000 a year or married couples who earn less than $125,000 per year. Earn $250,000, according to the White House.

About 8 million borrowers will be automatically affected, the Ministry of Education said; others must ask for forgiveness.

The government also forgives up to $20,000 in debt for about 6 million students from low-income families who have received federal Pell grants, and is proposing a new rule that protects some income from repayment plans and forgives some loan balances after 10 years of repayment, the Education Department said. Department said.

A study from the Federal Reserve in New York shows that cutting $10,000 in federal debt for each student would add up to $321 billion and eliminate the entire balance for 11.8 million borrowers, or 31% of them.

INFLUENCE OF INFLATION

A senior official in the Biden administration told reporters the plan could benefit up to 43 million student borrowers, completely canceling debt for about 20 million.

After December 31, the government will resume payment of remaining student loans interrupted during the pandemic. The official said this would offset any inflationary effects of the forgiveness. Resumption of payments may even have a dampening effect on prices, the official said.

Former Treasury Secretary Larry Summers disagreed. He said on Twitter that debt relief “uses resources that could be better used to help those who for whatever reason don’t have the opportunity to attend college. It will also be inflationary by increasing tuition fees.”

Similarly, Jason Furman, a Harvard professor who headed the Council of Economic Advisers during the Obama administration, said debt forgiveness would negate the deflationary powers of the Inflation Reduction Act. “It is reckless to pour about half a trillion dollars of gasoline on the inflationary fire that is already burning,” he said.

Mark Zandi, chief economist at Moody’s analytics, sided with the White House, saying the resumption of billions of dollars a month in student loan payments “will slow growth and be disinflationary.”

Register now for FREE unlimited access to Reuters.com

Reporting by Nandita Bose in Rehoboth Beach, Delaware, Alexandra Alper and Dave Lawder in Washington and Moira Warburton in Vancouver; adaptation by Jonathan Oatis, Heather Timmons and David Gregorio

Our Standards: The Thomson Reuters Trust Principles.

The Valley Voice
The Valley Voicehttp://thevalleyvoice.org
Christopher Brito is a social media producer and trending writer for The Valley Voice, with a focus on sports and stories related to race and culture.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Share post:

Popular

More like this
Related

Will inflation continue to rise?

linflation. It has become almost a curse word...

Blonde: Netflix’s Marilyn Monroe-JFK scene called ‘horrifying’ and ‘disgusting exploitation’

Netflix users are especially outraged by a "horrific" scene...

Putin annexes four regions of Ukraine in major escalation of Russia’s war | Ukraine

Vladimir Putin has signed "accession treaties" formalizing Russia's illegal...