According to media reports, the “With Democrats, the government works to help those who need it most” initiative will give economic aid to a good part of Americans and could increase the support for the Democrats just before the November midterm elections.
Some economists, meanwhile, even those who have worked in Democratic administrations, argued that canceling student debt could further spike inflation and inflate the national debt. And some education experts pointed out that while it may ease the pain of some debtors, Biden’s effort does little to fix the fundamental problem — the high cost of college that prices many Americans out or leaves them laden with loans.
According to economist Beth Akers, the net result of the forgiveness plan is more politically than economically coherent.
If Biden were in it to help struggling borrowers, he’d be working with Congress to enact systemic reform that would make things better for future students,” “shoring up existing safety nets, streamlining repayment to minimize the hassle for borrowers, and avoiding driving up future borrowing and prices.”
For Jason Furman, former advisor to Presidents Bill Clinton (1993-2001) and Barack Obama (2009-2017), “pouring about half a trillion dollars of gasoline on the inflationary fire that is already burning is reckless”.
The outline of the administration’s plan calls for erasing up to $10,000 in federal student loan debt for borrowers making less than $125,000 annually. For those in lower income brackets who received Pell Grants, the forgiveness will be $20,000. In addition, the current moratorium on repaying student loan debts, which expires next week, will be extended for the seventh time until January.
Over 43 million people have federal student debt, with an average balance of $37,667, according to federal data. Nearly a third of borrowers owe less than $10,000, and about half owe less than $20,000. The White House estimates that the president’s plan would eliminate the federal student debt of about 20 million people.
In a context characterized by GOP attacks on the Democratic administration for price hikes, with Biden´s announcement responded to pressure from hundreds of Democratic lawmakers, who in a recent letter called for him to suspend or postpone payments again.
While Biden’s order should provide at least $300 billion in relief over a decade, several experts do not believe it will trigger a surge in consumer spending similar to previous rounds of stimulus checks handed out during the outbreak of the Covid-19 pandemic.