WASHINGTON — President Biden’s plan to forgive some student debt sharply divides liberal economists and pits the White House economic team against both independent analysts and veterans of past Democratic administrations. I was.
Areas of disagreement include how much the debt relief package and other changes to student loans will cost taxpayers, and whether the plan will “pay” from a budget standpoint. The plan’s impact on rapidly rising inflation and the extent to which it will help those most in need are also up for debate.
The plan, announced last week, includes loan forgiveness of up to $10,000 for individuals earning $125,000 or less, and an additional $10,000 for low-income borrowers who received Pell grants at college. It contains. Biden also suggested changes to his upcoming loan repayment plan. This reduces monthly costs and eliminates interest accumulation for potentially millions of low-income borrowers who are still paying.
White House officials provided partial estimates of who would benefit most from these moves and how much they would reduce federal revenue. I am claiming that And while they claimed it was “paid for,” it’s not how budget experts agree to fit that term.
conservative economist attacked the planargue that it will cause higher inflation and cost taxpayers hundreds of billions of dollars in new debt. defended it As a lifeline for graduates who have been hit by soaring higher education costs.
What You Need to Know About Student Loan Debt Relief
What You Need to Know About Student Loan Debt Relief
Many people will benefit. President Biden’s executive order means millions of federal student loan balances could be reduced by up to $20,000. Below are answers to frequently asked questions about how this works. is shown.
Here’s a quick guide to some of the economic controversies Biden’s plans have sparked.
How much will it cost?
Forgiving existing debt and reducing future debt service payments eats into the federal revenue stream and increases the budget deficit. However, it is very difficult to say how much that increase will be for several reasons.
First of all, it is unclear what percentage of eligible borrowers will go through the process of requesting debt forgiveness from the Department of Education, which has not yet set up a forgiveness program. If so, it’s not clear how many of those who applied for debt cancellation paid off in full. Each of these variables can significantly affect the total cost of lost revenue.
An outside group tried to estimate the total cost.of Calculated by the Responsible Federal Budget Board The budget impact is between $440 billion and $600 billion over ten years.University of Pennsylvania Penn Wharton Budget Model Estimates over $600 billion Over 10 years.
The White House won’t complete an official estimate of the cost of the plan until winter at the earliest. White House Budget OfficeBut officials say these outside estimates are too high. The Budget Office estimates that debt relief of up to $20,000 per borrower, part of the program, could result in $24 billion in annual loan payments to the government over the next 10 years, assuming three-quarters of his borrowers participate in the program. We estimate that it will be reduced.
Officials also claim the plan has “paid” — as the federal deficit is set to shrink by at least $1.7 trillion this year compared to last year. Officials said in interviews that Mr. Biden is confident debt forgiveness is possible as the country’s fiscal situation improves.
“It will be paid for by the amount of deficit reduction already on track this year and more than that,” Bharat Ramamurti, deputy director of the National Economic Council, told reporters on Friday.
That’s not how “paid” usually works. The budget deficit is shrinking partly because it pays out $1.9 trillion in stimulus packages aimed at helping people, businesses and governments to withstand the pandemic, not just higher tax revenues. And because the government borrowed trillions of dollars more last year than usual. Officials are effectively claiming they are paying for student loan relief by not borrowing any more money for pandemic assistance.
Will inflation go up?
It’s an economic baseline debate that actually makes sense for American shoppers experiencing the fastest price increases in 40 years. Some economists, such as Harvard University’s Jason Furman and Lawrence H. Summers, both former economic officials in Democratic presidential administrations, have warned that allowing student debt leads to inflation. Their rationale: By reducing or eliminating future loan payments, consumers can spend more money. Borrowers do not receive checks from the government, but are relieved of the financial burden of monthly payments.
Student Loan Debt Relief Details
“It would be reckless to pour about $5 trillion in gasoline into an already burning inflationary fire,” Mr. Furman said. wrote on twitter last week.
White House economists, including Council of Economic Advisers Jared Bernstein, have argued that Biden’s moves do not add up to inflation. That’s because Mr. Biden announced last week that he would resume federal student loan payments in January after “pausing” them for nearly three years because of the pandemic. Researchers at Goldman Sachs agree that the plan won’t exacerbate inflation, saying the drop in purchasing power from resuming interest payments will more than offset the boost from loan forgiveness.
Inflation critics say the suspension of payments was not permanent, so dubious economic calculations are used in the calculations. If your basic assumption was that people would start making loan payments again soon, adding leniency on top of that would be inflation to some extent.
The actual inflation rate does not take into account the baseline. It depends a lot on how much money consumers have to spend (and how few goods and services they can afford to buy). Inflation is unlikely to spike again next year as a result of Mr. Biden’s plans, according to Goldman Sachs and other forecasters. But it could be at least slightly higher than if he had simply ended the payment moratorium and not announced any debt relief.
In that sense, to use Fuhrman’s analogy, Biden’s actions may not be like pouring gasoline, but more like adding another log to keep the heat constant when the fire starts to burn out. not.
who benefits?
of An Early Penn-Wharton Model of Biden’s Planprovide more generous benefits to borrowers from low-income backgrounds and impose income limits on those receiving debt forgiveness, with nearly three-quarters of the scheme’s benefits going to low-income and middle-class was found to be provided to income earners of the one at the top.
Some critics said the plan was gifts for the rich — or, more precisely, soon-to-be-rich people who are just starting out in their fields, like young doctors and lawyers. These critics have called on the White House to produce an analysis that effectively predicts the impact of policies on various borrowers when expected lifetime incomes are taken into account. Officials say that is not possible without more analytical work.
Penn Wharton attempted a rough approximation of such an analysis by calculating the plan’s effect only on borrowers aged 25 to 35. However, no essential change in results was observed. Annual income he into a household of $ 29,000 to $ 88,000.