Economic experts raise red flags over inflation if Biden cancels student debt

Economic experts are warning that the country’s ongoing inflation crisis will drastically worsen if President Joe Biden decides to cancel large amounts of student debt.

This comes amid reports that the White House is seriously considering plans to eliminate student debt, even while signaling that the loan forgiveness package would likely be less than the $50,000-per-borrower amount that many in the Democratic Party had agitated for.

But it’s hard not to see signs of desperation in the move, with the Democrats casting about for some kind of life preserver to buoy their hopes in what is widely predicted to be a “wave” election for Republicans during the midterms.

Providing student debt relief would certainly be one way, if a cynical one, to shore up support among the Democrats’ current base of academic debt slaves.

But in the estimation of Maya MacGuineas, president of the Committee for a Responsible Federal Budget (CRFB), the move is more of a political talking point, rather than a sound economic policy.

In a statement released on Thursday, MacGuineas explained: “Student debt cancellation may be an extremely appealing political talking point, but it is not good policy. It is costly, inflationary, poorly targeted, and fails to address the root problems in our higher education financing system.

“Full debt cancellation would be a massive hand-out to rich doctors and lawyers, would worsen our inflation crisis, and would cost almost as much as the entire 2017 tax cuts. Even partial debt cancellation would be costly, regressive, and inflationary. Forgiving $10,000 per person of debt would cost as much as universal pre-K or a full extension of the expanded ACA subsidies.”

“Either the President is serious about reducing deficits and getting inflation under control, or he is not,” she added. “The White House can’t have it both ways. We need to be focusing on a serious and effective agenda that prioritizes sound policies, not poorly targeted political giveaways.”

Other organizations were equally pessimistic about the effects of student debt cancellation. Speaking to Fox News Digital, Jessica Anderson, the executive director of Heritage Action—the political arm of the conservative think-tank The Heritage Foundation—is concerned that providing student loan forgiveness would increase inflation by upwards of 20%.

“Make no mistake,” she said, “this is a handout to wealthy, educated voters that will come at the expense of higher prices for food, gas, and energy for working American families who won’t see a dime of relief—not to mention higher taxes. This is an absurd election-year gimmick that punishes most Americans.”

The Committee for a Responsible Federal Budget has consistently warned that canceling student debt would negatively impact the country’s already out-of-control inflation rate. In late February, the organization predicted that forgiving the full $1.6 trillion of accumulated student debt would increase the inflation rate by 0.1 to 0.5 percentage points during the year following the onset of repayments.

“This would represent a 4 to 20 percent increase relative to the median Federal Reserve inflation rate forecast,” the report noted. “The inflation effect of cancelling $1.6 trillion in student debt would be small relative to the enormous amount involved, since repayments are spread out over time and the benefits of debt cancellation accrue mainly to higher earners, who tend to save more of their money.”

Nevertheless, the report indicated that the effects would still be significant with respect to the underlying inflation rate.

“Moreover, even a modest increase in inflationary pressures could feed into current inflation dynamics, increasing the risk of a wage-price spiral and making it harder for the Federal Reserve to re-anchor inflation expectations around its current target…Besides adding $1.6 trillion to the national debt and disproportionately benefiting higher-income individuals, we find student debt cancellation would cause prices to increase faster than they already are, exacerbating inflationary pressures,” the report noted.

However, given the high stakes of the midterm elections, and the overwhelming popularity of student loan forgiveness with the Democratic base of overeducated and massively indebted young people, it’s unlikely the Biden administration will heed the warnings of these economic experts anytime soon.


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