The move could boost support for his fellow Democrats in November’s congressional elections, but some economists said it could fuel inflation and some Republicans in the US Congress questioned whether the president had the legal authority to cancel the debt. Debt cancellation would free up hundreds of billions of dollars for new consumer spending that could target housing and other big-ticket spending, according to economists who said it would add a new wrinkle to the nation’s inflation battle. Sign up now for FREE unlimited access to Reuters.com Register The actions are “for the families who need them most — the working and middle classes are being hit especially hard during the pandemic,” Biden said during remarks at the White House. He pledged that no high-income households would benefit, a central criticism of the plan. “I will never apologize for helping working Americans and the middle class, especially not the same people who voted for a $2 trillion tax cut that mostly benefited the wealthiest Americans and the biggest corporations,” Biden said, referring to the tax cut. of the Republicans. former President Donald Trump. Borrower balances have been frozen since the start of the COVID-19 epidemic, with no payments required on most federal student loans since March 2020. Many Democrats had pressed Biden to forgive up to $50,000 per borrower. Republicans have mostly opposed student loan forgiveness, calling it unfair because it will disproportionately help people who earn higher incomes. “President Biden’s student loan socialism is a slap in the face to every family who sacrificed to save for college, every graduate who paid off their debt, and every American who chose a particular career or volunteered to serve in our Armed Forces. to avoid taking on debt,” Senate Minority Leader Mitch McConnell said Wednesday. The administration has yet to set a price for the package, which will depend on how many people apply for it, White House domestic policy adviser Susan Rice told reporters. Student loans taken out after June 30 this year are not eligible, he said. White House Press Secretary Karine Jean-Pierre told reporters that the administration has the legal authority to forgive the debt under a law that allows such actions in the event of a national emergency, such as a pandemic. Earlier, Republican US Representative Elise Stefanik called the plan “reckless and illegal.” American university tuition is significantly higher than in most other wealthy countries, and American consumers carry $1.75 trillion in student loan debt, most of which is held by the federal government. Biden said other countries could overtake the United States financially if students are not offered financial relief.
PANDEMIC PAUSE, PELL GRANTS
FILE PHOTO – Graduates stand during Harvard University’s 371st commencement exercises in Cambridge, Massachusetts, U.S., May 26, 2022. REUTERS/Brian Snyder read more The administration will extend a student loan repayment freeze due to the COVID-19 pandemic until the end of the year, while forgiving $10,000 in student debt for single borrowers with annual incomes below $125,000 or married couples earning less than $250,000, the administration said. White House. About 8 million borrowers will be automatically affected, the Education Department said. others must apply for forgiveness. The administration is also forgiving up to $20,000 in debt for about 6 million students from low-income families who received federal Pell grants, and is proposing a new rule that protects some income from repayment plans and forgives some loan balances after 10 years of repayment, Education said. the Department. A study by the Federal Reserve Bank of New York shows that cutting $10,000 in federal debt for each student would amount to $321 billion and eliminate the entire balance for 11.8 million borrowers, or 31 percent of them.
IMPACT OF INFLATION
A senior Biden administration official told reporters the plan could benefit up to 43 million student borrowers, completely canceling debt for about 20 million. After December 31, the government will continue to demand payment on remaining student loans that were suspended during the pandemic. The official said this would offset any inflationary effects of the pardon. The resumption of payments could even have a negative impact on prices, the official said. Former US Treasury Secretary Larry Summers disagreed. He tweeted that the debt relief “consumes resources that could be better used helping those who, for whatever reason, didn’t have the opportunity to attend college. It will also tend to be inflationary by raising tuition.” Similarly, Jason Furman, a Harvard professor who headed the Council of Economic Advisers during the Obama administration, said debt cancellation would nullify the deflationary powers of the Inflation Reduction Act. “To pour about half a trillion dollars of gasoline on the already burning inflationary fire is reckless,” he said. Moody’s chief economist Mark Zandi sided with the White House, saying resuming payments on billions of dollars a month in student loans “will limit growth and is deflationary.” Sign up now for FREE unlimited access to Reuters.com Register Reporting by Nandita Bose in Rehoboth Beach, Delaware, Alexandra Alper and Dave Lawder in Washington and Moira Warburton in Vancouver. edited by Jonathan Oatis, Heather Timmons and David Gregorio Our Standards: The Thomson Reuters Trust Principles.
