The Biden administration released their plan for providing student loan relief for households making under 250,000 a year…(White House)
- How much. The Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education, and up to $10,000 in debt cancellation to non-Pell Grant recipients.
- Who is eligible. Borrowers are eligible for this relief if their individual income is less than $125,000 ($250,000 for married couples).
To smooth the transition, the President will extend the pause on federal student loan repayment for one final time through December 31, 2022. Borrowers should expect to resume payment in January 2023. The administration estimates that this will provide relief to up to 43 million borrowers, including canceling the full remaining balance for roughly 20 million borrowers.
A recent poll from CNBC found that 59% of Americans are concerned that student loan forgiveness will make inflation worse and they are not alone. Art Laffer told Newsweek “[Forgiving student loans] will reduce the number of goods, which is inflationary. It will increase the size of the monetary base, which is also inflationary. The two together, I don’t know how much it will contribute [to inflation], but it’s not a trivial amount.” If the Biden admin was hoping for an economic boost from the forgiveness Goldman Sachs thinks these are not the droids you are looking for. “In that analysis, we found that debt forgiveness of $10k per borrower would discharge around $300bn (1.2% of GDP) of debt but would boost consumption by less than less than 0.1% of GDP over the year following implementation.”
Support may be few and far between, but the Biden administration was not alone in their belief that student loan forgiveness would not be inflationary. Mike Konczal, and Alí Bustamante, at the Roosevelt Institute, recently wrote that canceling debt alongside the restarting of payments on student loans would essentially cancel each other out. “…restarting payments would reduce inflation by 20 basis points a year each year, versus a 15 basis point increase to canceling $10,000 in student debt. Thus a deal that canceled student debt and restarted payments would reduce inflation versus the status quo.”