WASHINGTON, Aug 24 (Reuters) – President Joe Biden said on Wednesday the U.S. government would forgive $10,000 in student loans to millions of indebted former students, fulfilling a promise he made during the 2020 campaign to the White House.
The move could bolster support for his fellow Democrats in November’s congressional elections, but some economists have said it could fuel inflation and some Republicans in the U.S. Congress have questioned whether the president has the legal power to overturn the vote. debt.
Debt cancellation will free up hundreds of billions of dollars for new consumer spending that could be earmarked for home buying and other big spending, economists say, who said it would add new ride to the country’s fight against inflation.
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The shares are “for the families who need it most — working-class and middle-class people have been hit particularly hard during the pandemic,” Biden said during a White House speech. He promised no high-income households would benefit, responding to a central criticism of the plan.
“I will never apologize for helping American workers and the middle class, especially not the same people who voted for a $2 trillion tax cut that primarily benefited the wealthiest and most vulnerable Americans. big business,” Biden said, referring to a Republican tax cut enacted under former President Donald Trump.
Borrower balances have been frozen since the start of the COVID-19 outbreak, with no payments required on most federal student loans since March 2020. Many Democrats had pushed Biden to forgive up to $50,000 per borrower.
Republicans have mostly opposed the student loan forgiveness, calling it unfair because it will disproportionately help people earning higher incomes.
“President Biden’s student loan socialism is a slap in the face to every family who has sacrificed to save for college, every graduate who has paid off their debt, and every American who has chosen a certain career path or gone volunteer to serve in our armed forces to avoid going into debt,” Senate Minority Leader Mitch McConnell said Wednesday.
The administration has not yet determined the price of the package, which will depend on how many people apply for it, White House domestic policy adviser Susan Rice told reporters. Student loans obtained after June 30 this year are not eligible, she said.
White House press secretary Karine Jean-Pierre told reporters the administration has the legal authority to cancel debt under a law authorizing such action during a national emergency such as a pandemic. Earlier, Republican U.S. Representative Elise Stefanik called the plan “reckless and illegal.”
Tuition fees at American universities are considerably higher than in most other wealthy countries, and American consumers have $1.75 trillion in student loan debt, most of which is held by the federal government. Biden said other countries could bypass the United States economically if students are not offered economic aid.
PANDEMIC BREAK, PELL GRANTS
The administration will extend a COVID-19 pandemic-related pause on student loan repayments through the end of the year, while canceling $10,000 in student debt for single borrowers with annual incomes below $125,000 a year or married couples earning less than $250,000, the White House said.
Some 8 million borrowers will automatically be affected, said the Ministry of Education; others have to ask for forgiveness.
The government also erases up to $20,000 in debt for some 6 million students from low-income families who received federal Pell grants, and proposes a new rule that protects some income from repayment plans and cancels some balances. of loans after 10 years of repayment, the Education department said.
A New York Federal Reserve study shows that reducing federal debt by $10,000 for each student would amount to $321 billion and eliminate the entire balance for 11.8 million borrowers, or 31% of between 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 resume requiring payment of remaining student loans that were halted during the pandemic. The official said this would offset the inflationary effects of forgiveness. The resumption of payments could even have a moderating effect on prices, the official said.
Former US Treasury Secretary Larry Summers disagreed. He said on Twitter that debt relief “drains resources that could be better spent helping those who, for whatever reason, haven’t had the chance to go to college. It will also tend to to be inflationary by raising tuition fees”.
Similarly, Jason Furman, a Harvard professor who headed the Council of Economic Advisers during the Obama administration, said debt cancellation would undo the deflationary powers of the Inflation Reduction Act. “Pouring about half a trillion dollars worth of gasoline on the inflationary fire that is already burning is unwise,” he said.
Moody’s Analytics chief economist Mark Zandi sided with the White House, saying resuming billions of dollars a month in student loan payments “will constrain growth and is disinflationary.”
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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
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