WASHINGTON, Aug 24 (Reuters) – President Joe Biden said on Wednesday the U.S. government would forgive $10,000 in student loans for former college students saddled with millions in debt, keeping with a promise he made in his 2020 White House campaign.
The move could boost support for his fellow Democrats in November’s congressional elections, but some economists say it could stoke inflation and some Republicans in the US Congress question whether the president has the legal authority to cancel the debt.
Debt forgiveness would free up hundreds of billions of dollars for new consumer spending, which could be targeted at home purchases and other big-ticket expenses, adding a new wrinkle to the nation’s inflation battle, according to economists.
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The measures “will help families who need them most — working and middle-class people who have been hit particularly hard during the pandemic,” Biden said during remarks at the White House. He assured that high-income families would not benefit, addressing a central criticism of the plan.
“I will never apologize for helping working Americans and the middle class, especially not the same people who voted for a $2 trillion tax cut that mainly benefits the wealthiest Americans and big corporations,” Biden said. Former President Donald Trump.
Since March 2020, most federal student loans have not required payments, borrower balances have been frozen since the Covid-19 outbreak. Many Democrats urged Biden to forgive the debtor $50,000.
Republicans largely opposed student loan forgiveness, saying it was unfair because it would disproportionately help higher-income people.
“President Biden’s student loan socialism is a slap in the face to every family who sacrificed for college, every graduate who paid off debt, every American who chose a certain career path or volunteered to serve in our armed forces. Accepting debt,” Senate Minority Leader Mitch McConnell said Wednesday.
The administration has not yet determined a price tag for the package, which depends on how many people apply, White House domestic policy adviser Susan Rice told reporters. Student loans taken out after June 30 this year are ineligible, he said.
White House press secretary Karine Jean-Pierre told reporters that the administration has the 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 called the plan “irresponsible and illegal.”
U.S. university tuition is significantly higher than in other wealthy nations, and U.S. consumers carry $1.75 trillion in student loan debt, much of it held by the federal government. Biden said other countries could boycott the U.S. economically if students were not given economic relief.
Epidemic Suspension, Bell Grants
The administration will extend a COVID-19 pandemic-linked moratorium on student loan repayments until the end of the year, while forgiving $10,000 in student loans for married couples earning $125,000 or less in annual income, the White House said.
The Education Department said about 8 million borrowers would be automatically affected; Others must apply for pardon.
The government is forgiving up to $20,000 in loans for about 6 million students from low-income families who receive federal Pell grants, and is proposing a new rule that would protect some income from repayment plans after 10 years and forgive some loan balances. Department said.
A New York Federal Reserve study shows that a $10,000 reduction in federal debt per student would cost $321 billion and eliminate 11.8 million borrowers, or 31% of their total debt.
A senior Biden administration official told reporters that the plan would benefit 43 million student loan borrowers, completely canceling about 20 million of their loans.
Dec. After 31, the government will resume payments on remaining student loans suspended during the pandemic. This will offset any inflationary effects of the amnesty, the official said. The official said the resumption of tariffs may even have a downward effect on prices.
Former US Treasury Secretary Larry Summers disagrees. He said on Twitter that debt relief “uses resources that could be better used to help people who, for whatever reason, don’t go to college. It causes inflation by raising tuition.”
Similarly, Harvard professor Jason Furman, who chaired the Council of Economic Advisers during the Obama administration, said debt cancellation would nullify the deflationary powers of the Anti-Inflation Act. “It would be reckless to pour nearly half a trillion dollars of gasoline on an already burning inflationary fire,” he said.
Moody’s analytics chief economist Mark Zandi sided with the White House, saying that resuming billions of dollars a month in student loan payments would “restrain growth and dampen inflation.”
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Reporting by Nandita Bose in Rehoboth Beach, Delaware, Alexandra Alber and Dave Lauder in Washington, and Moira Warburton in Vancouver; Editing by Jonathan Oatis, Heather Timmons and David Gregorio
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