As President Bidenfor a wide range of borrowers, critics say it would not bring financial relief to Americans who need it most while potentially hurting the economy.
Americans in debt generally have higher incomes because a college degree tends to lead to a more lucrative career. Therefore, the forgiveness of these loans would mainly benefit people with higher education.
“If you look at who has student loans, that largely reflects who goes to college and graduate school in the United States, and colleges and graduate schools are overwhelmingly made up of people from the upper middle class or high-income families,” said Adam Looney. , a senior fellow at the centrist think tank The Brookings Institution and an expert on student debt.
“Student debt is mostly owed by the wealthiest and most affluent Americans, so it’s who gets the money under a sweeping plan to forgive student loans,” he added.
Last week Mr Biden said he wasto forgive some federal student loans, with a plan expected to be announced in a few weeks. He did not specify how much debt could be forgiven, but said it would likely be less than $50,000 per individual. Payments on borrowers’ existing student loans .
Forgiving some student loan debt could pay political dividends ahead of November’s midterm elections, especially among younger voters. But wiping out the $1.4 trillion total that Americans currently have in student loans could backfire, some experts say.
“It’s a huge cost, and you should never, in the world of budgeting, push a policy through unless it really is the best claim on those resources and the most important priority,” Maya said. MacGuineas, chair of the Committee for an Accountable Federal Government. Budget, a nonpartisan public policy advocacy group.
MacGuineas also noted that canceling college debt would disproportionately benefit the most educated people, noting that “the poorest people in the country don’t actually have student debt.”
The benefits for borrowers are clear. People in debt who would have had to put off buying a house or a car, or starting a family to cover their monthly loan repayments, are relieved of this expense. Other experts fear that the cancellation of a large share of student loans could stimulate already runaway inflation by fueling personal consumption.
“On the sidelines, it would put more money into the households that receive the aid. And those households are more likely than not to use that extra cushion in their monthly budget to buy more things or buy more services” said Ed Mills, an analyst with investment bank Raymond James. “So if you were 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 term, erasing student debt could also lead to reckless borrowing by sending a signal that future student loans could be forgiven.
“It creates a risk that people will take on more debt thinking it will be forgiven,” MacGuineas said, adding that “now is not the time to turn on government printing presses and inject more ‘money in the economy’.
According to Diana Furchtgott-Roth, Chief Economist at the Department of Labor under President George W Bush and Deputy Assistant Secretary for Research and Technology at the Department of Transportation under President Donald Trump.
Mass cancellation of college debt would penalize Americans who have worked hard while putting off major purchases, like buying a home or starting a family, to prioritize paying off their student loans. Students who have gone to college, earning money while studying to pay their tuition might also think, “Why did I have trouble if Biden pays off the debt?” “Said Furchtgott-Roth.