Biden plan to cancel student loans is bad policy, critics say

As President Biden weighs in if it cancels student loans for a wide range of borrowers, critics say it would not provide financial relief to Americans who need it most, while it could hurt the economy.

Americans with school debt generally have higher incomes because a college degree tends to lead to a more lucrative career. As a result, canceling these loans would primarily benefit people with a college education.

“If you look at who has student loans, it largely reflects who goes to college and graduate school in the U.S., and college and graduate school are overwhelmingly made up of upper middle class people or high-income families. said Adam Looney. , a senior member of The Brookings Institution think tank and a student loan debt expert.

“Student debt is mostly owed by higher-income and wealthier Americans, so this is the one who gets the money under a widespread student loan forgiveness plan,” he added.

Last week, Mr Biden said yes “Take a hard look” to forgive some federal student loans, with a plan expected to be announced in a matter of weeks. He did not specify how much debt could be forgiven, but said it is likely to be less than $ 50,000 per individual. Payments of existing student loans from borrowers they are currently on pause until August 31st.

The cancellation of some student loan debt could pay political dividends ahead of the November midterm elections, especially among younger voters. But clearing the $ 1.4 trillion total that Americans currently have on student loans could be counterproductive, according to some experts.

“This is a huge cost, and in the world of budgeting you should never push for a policy unless it is really the best claim to these resources and the top priority,” said Maya MacGuineas, chair of the Committee on a responsible federal. Budget, a non-partisan public policy advocacy group.

MacGuineas also noted that forgiving college debt would disproportionately benefit people with higher education, noting that “The poorest people in the country don’t actually have student debt.”

Other experts are concerned that the cancellation of a large portion of student loans could increase inflation that is already sweeping away fueling personal consumption.

“Aside from that, that would put more money into households receiving relief. And those households are more likely to use that extra pillow in their monthly budget to buy more things or buy more services,” said Ed Mills, an analyst of investment bank Raymond James. “So if you have to put it in one bucket or another, it’s more in the bucket to contribute than not to contribute to inflation.”

In the long run, eliminating student debt now could also lead to reckless lending by sending a signal that future student loans can be forgiven.

“This creates the risk that people will take on more debt believing it will be canceled,” MacGuineas said, adding that “now is not the time to turn on government printing presses and throw more money into the economy.”

Moral risk?

Debt cancellation of student loans also poses a moral hazard in leading borrowers to wonder why they should pay their debt if the federal government ends up taking responsibility, according to Diana Furchtgott-Roth, chief economist in the department. of Labor under President George W. Bush and Deputy Secretary of Research and Technology for the Department of Transportation under President Donald Trump.

Mass forgiveness of college debt would penalize Americans who have worked hard while postponing major purchases, such as buying a home or starting a family, to prioritize the payment of their student loans. Students who have advanced to college while earning money while studying to pay tuition may also think, “Why did I go through the trouble if Biden is paying off the debt?” Furchtgott-Roth said.