Biden student loan forgiveness impacts millions, raises inflation question

Cancelling the debt will free up hundreds of billions of dollars for new consumer spending that could be aimed at homebuying, according to economists who said this would add a new wrinkle to the country's inflation fight.

"By resuming student loan payments at the same time as we provide targeted relief, we're taking an economically responsible course. As a consequence, about 50 billion dollars a year will start coming back into the Treasury because of the resumption of debt. Independent experts agree that these actions taken together will provide real benefits for families without meaningful effect on inflation," Biden said as he announced the measures at the White House.

Many Democrats had pushed for Biden to forgive as much as $50,000 per borrower but cheered his action.

Republicans, seeking to regain control of Congress in November, oppose the move, arguing it is unfair because it will disproportionately help people earning higher incomes.

U.S. consumers carry a massive $1.75 trillion in student loan debt, most of it held by the federal government, the result of university tuition fees substantially higher than in most other rich countries.

Biden's administration will extend a Covid-19 pandemic-linked pause on student loan repayment to the end of the year while forgiving $10,000 in student debt for borrowers whose income falls below $125,000 a year, or $250,000 for a married couple, the White House said. The forgiveness could impact 8 million borrowers automatically, the Department of Education said, while others would need to apply for forgiveness.

The government is also forgiving up to $20,000 in debt for recipients of federal Pell Grants, some 6 million students from low-income families, and is proposing a new rule that protects some income from repayment plans and forgives some loan balances after 10 years of repayment, the Education Department said.

Cutting $10,000 in federal debt for every student would amount to $321 billion of federal student loans and eliminate the entire balance for 11.8 million borrowers, or 31% of them, a New York Federal Reserve study shows.

Borrower balances have been frozen since the beginning of the Covid-19 outbreak, with no payments required on most federal student loans since March 2020.

Students from across the U.S. welcomed the announcement from Biden to cancel billions of dollars in student debt.

A psychology major at Howard University, Moniest Cardell, said the weight was lifted off her shoulders as the $20,000 of erased debt would mean relief for her whole family.

James Gore, 20, a media and film major from North Carolina, told Reuters he supported the measure even though he didn’t have any pending loans, being a scholarship athlete.

Given the stress debt can cause in many people, the measure means a little bit of breathing room’ according to the computer science major Jie Reid.

Madeleine “Maddy” Clifford, 35, a writer and musician in Oakland, California, went to undergrad at the University of Washington before going to graduate school at Mills College in Oakland for her master’s in fine arts. She now has roughly $100,000 in student loan debt.

She said Biden’s announcement made her feel both underwhelmed and excited, calling the $10,000 a step in the right direction while adding more can be done.

“Biden’s announcement means that we need to continue to apply pressure because it’s great that he made that decision, but also we don’t have to accept crumbs,” Clifford said.

Clifford currently volunteers for the Debt Collective, a national organization that pushes for full student loan debt cancellation. She believes full cancellation is not too much to ask.

“I’m asking to be back at zero. I’m asking for a fair chance to actually build wealth,” she said. “Two years ago, $10K was a ridiculous thing to ask for and now we’ve just won it. So what that tells us and what that shows us is that we have to keep fighting.”