WASHINGTON, Aug 24 (Reuters) – President Joe Biden said on Wednesday the U.S. government would forgive $10,000 in student loans for millions of former college students with debt, keeping a campaign promise 2020 for the White House.
The move could boost support for fellow Democrats in November’s congressional elections, but some economists said it could fuel inflation and some Republicans in the US Congress questioned whether the president had the legal authority to cancel the debt
Debt relief will free up hundreds of billions of dollars in new consumer spending that could go toward home purchases and other big expenses, according to economists who said it would add a new wrinkle to the fight against the country’s inflation.
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The actions are “for the families who need them most: working and middle-class people especially hard hit during the pandemic,” Biden said during remarks at the White House. He promised that no high-income households would benefit, addressing a central criticism of the plan.
“I will never apologize for helping working and middle class Americans, especially not the same people who voted for a $2 trillion tax cut that mostly benefited the wealthiest Americans and corporations bigger,” Biden said, referring to a Republican tax cut by former President Donald Trump.
Borrower balances have been frozen since the start of the COVID-19 epidemic, with no payments required on most federal student loans since March 2020. Many Democrats had pushed for Biden to forgive up to to $50,000 per borrower.
Republicans mostly opposed student loan forgiveness, calling it unfair because it will disproportionately help people with higher incomes.
“President Biden’s student loan socialism is a slap in the face to every family who sacrificed to save for college, every graduate who paid off their debt, and every American who chose a certain career path or left to volunteer to serve in our armed forces to avoid taking on debt,” Senate Minority Leader Mitch McConnell said Wednesday.
The administration has yet to determine the price of the package, which will depend on how many people apply for it, White House domestic policy adviser Susan Rice told reporters. Student loans taken out after June 30 of this year are not eligible, he said.
White House press secretary Karine Jean-Pierre told reporters the administration has legal authority to forgive the debt under a law that allows such action during a national emergency such as a pandemic. Earlier, Republican US Representative Elise Stefanik had called the plan “reckless and illegal”.
American college tuition rates are substantially higher than in most other wealthy countries, and American consumers carry $1.75 trillion in student loan debt, most of it held by the federal government. Biden said other countries could bypass the United States economically if financial aid is not provided to students.
PANDEMIC BREAK, SKIN GRANTS
FILE PHOTO: Graduating students stand during the 371st commencement exercises at Harvard University in Cambridge, Massachusetts, U.S., May 26, 2022. REUTERS/Brian Snyder
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The administration will extend a COVID-19 pandemic-related pause in student loan repayment through the end of the year, while forgiving $10,000 in student debt for single borrowers with annual incomes below $125,000 or married couples who earn less than $250,000, the White House said.
About 8 million borrowers will be automatically affected, the Education Department said; others must apologize.
The government is also forgiving up to $20,000 in debt for about 6 million students from low-income families who received federal Pell grants, and is proposing a new rule that would protect some income from repayment plans and forgive some loan balances. loans after 10 years of repayment. the department said.
A New York Federal Reserve study shows that cutting $10,000 in federal debt for each student would save $321 billion and wipe out the entire balance of 11.8 million borrowers, or 31 percent of them.
IMPACT OF INFLATION
A senior Biden administration official told reporters that the plan could benefit up to 43 million student borrowers, completely writing off the debt for about 20 million.
After December 31, the government will resume demanding repayment of remaining student loans that were halted during the pandemic. The official said this would offset any inflationary effects of the pardon. The resumption of payments could even have a dampening effect on prices, the official said.
Former US Treasury Secretary Larry Summers disagreed. He said on Twitter that debt relief “consumes resources that could be better used helping those who, for whatever reason, did not have the opportunity to attend college. It will also tend to be inflationary by raising tuition.”
Similarly, Jason Furman, a Harvard professor who led the Council of Economic Advisers during the Obama administration, said debt cancellation would nullify the deflationary powers of the Tax Reduction Act. the inflation “Pouring approximately half a trillion dollars of gasoline on the inflationary fire that is already burning is reckless,” he said.
Moody’s chief research economist Mark Zandi sided with the White House, saying the resumption of billions of dollars a month in student loan payments “will constrain growth and is disinflationary.”
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Reporting by Nandita Bose in Rehoboth Beach, Delaware, Alexandra Alper and Dave Lawder in Washington and Moira Warburton in Vancouver; edited by Jonathan Oatis, Heather Timmons and David Gregorio
Our standards: the Thomson Reuters Trust Principles.