Inflation Complicates Biden’s Deliberations On Student Loan Forgiveness

WASHINGTON — The skyrocketing cost of food, gasoline and other commodities is complicating a fraught debate between President Biden and his closest advisers about whether or not to fulfill his campaign promise to cancel thousands of dollars in student loans for tens of millions of people.

While Mr. Biden has signaled to Democratic lawmakers that he will likely move forward with some form of student loan relief, he is still urging his team to provide details on the economic impact of wiping out $10,000 in debt for some — or all – of the nation’s 43 million federal student loan recipients.

At meetings this spring, Mr. Biden repeatedly asked for more data on whether the move would primarily benefit affluent private university borrowers who may not need the help, according to people involved in the process. The country’s 8.6 percent inflation rate, a four-decade high, has further complicated the decision: what would it mean for the economy if the government canceled some $321 billion in loans?

“You’re talking about millions, possibly billions of dollars that can be spent. You should do it with your eyes open,” said Cedric Richmond, who stepped down as senior adviser to Mr Biden last month. “He wants to make sure it’s based on justice and that it doesn’t exacerbate inequalities.”

While Mr. Biden has not yet made a decision on the loan cancellation, his aides say he will do so before the end of August. The White House is deeply divided over the political and economic effects of loan forgiveness. Biden’s chief of staff Ron Klain has argued it would fuel a group of young voters growing increasingly frustrated with the president. Other assistants have presented data showing that many Americans who have saved up money to pay for tuition for themselves or their children would resent the move.

Some economic advisers have argued that the move could actually ease inflation, at least slightly, if he couples debt cancellation with a resumption of interest payments on student loans, which have been paused since the start of the pandemic.

Mr Biden’s deliberations are characteristic of his efforts to bridge deep ideological divides in the country, often within his party. According to people familiar with his thinking, Mr. Biden is struggling to balance his promise to make sweeping proposals to address racial and economic inequalities with concerns that canceling loans would exacerbate inflation and act as a giveaway. would be seen, thereby undermining his image as a champion of labor and the working class.

Mr Biden is considering a debt relief framework for students that his economic assistants have assured him will not exacerbate inflation and could potentially curb price growth somewhat.

Under the plan, Mr. Biden would forgive some of the debt for certain borrowers, likely up to $10,000 each, which would effectively give some of those borrowers more money to spend on goods and services, such as buying furniture or out food, which could potentially create additional demand that could push prices up even further. Any debt relief move would involve some sort of income cap for those who qualify.

But at the same time, he would end a pause on student loan interest payments for all borrowers, which was imposed in March 2020 and extended seven times, most recently until August 31. That would actually force many of those borrowers to spend money. less on goods and services to resume their loan payments.

Biden’s aides believe that linking the two policies could take a small amount of consumer purchasing power out of the economy. According to some government estimates, the two policies could bring inflation down very slightly. According to assistants, they would at least cancel each other out.

“Since fighting inflation is the president’s top domestic priority,” Jared Bernstein, a member of the White House’s Council of Economic Advisers, said in an interview, “the key economic fact here is that if the debt payment were to begin and debt relief would occur at about the same time, the net inflationary effect should be neutral.”

To craft a plan that would be inflation neutral at worst, according to government accounting, debt relief would have to be limited to far less than what more liberal Democrats have forced Mr. Biden to allow.

Opponents of debt cancellation would prefer Mr. Biden resume loan payments and not cancel any debt, which they believe would have a better chance of dampening inflation. And they say the government is making its inflation calculation look rosier by seeing the resumption of interest payments as a new policy that could work as a counterbalance to debt cancellation, when the pause was always meant to be only temporary.

The administration’s calculation showing the paired policy is neutral for inflation “isn’t the way I’d rather think about it,” said Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget, an impartial tax watchdog group in Washington. , and a critic of cancellation proposals. “But it’s not entirely bizarre that someone thinks that way.”

Biden told reporters this week that he was about to make a decision about student debt. A White House official, speaking on condition of anonymity to discuss internal discussions, said the administration wanted to wait until the end of August to assess how much of a problem inflation will be by then, as will any legislative move in Congress.

The White House has said it prefers Congress pass legislation on student loan relief, but Senate Democrats have no votes, leaving executive action the only clear path. And pressure is mounting from Democrats who want Biden to deliver on his campaign promise.

At a White House meeting in May, Senators Elizabeth Warren of Massachusetts, Chuck Schumer of New York and Raphael Warnock of Georgia, all Democrats, presented data to Biden that showed that debt cancellation would benefit borrowers who failed to graduate to pay the the idea that relief would be a giveaway for the privileged, according to one person briefed on the gathering. Vice President Kamala Harris has also met with Mr Biden to split the groups that would benefit, another official said.

Democrats have often cited a Temple University report showing that nearly 40 percent of full-time students who enrolled in the 2011-2012 academic year had some debt but did not graduate after six years.

Republicans in Congress have attacked the White House for being fiscally irresponsible. Representative Virginia Foxx of North Carolina, the top Republican on the Education and Labor Committee, said in a letter to the Department of Education this month that she was “seriously concerned that the department would further harm borrowers and taxpayers as it deals with student loan forgiveness.” … partly because of the inability to act on his grand proposals.”

The department’s loan managers fear a repeat of what happened last year, when they sent borrowers a series of reminders saying that payments would start again after January 31 – only to repeatedly delay the resumption of payments.

“The official direction is to march forward like it’s happening because that’s what’s going to happen unless we actively hear otherwise,” said Scott Buchanan, the executive director of the Student Loan Servicing Alliance, a trade group, adding that servicers should going to reach out to borrowers “in the next few months.”

The president might make less political gain than some aides think if he pursues the $10,000 forgiveness plan.

Some borrower and union advocates have warned that progress with limited relief with income caps could create more frustration among civil rights groups and younger voters.

William E. Spriggs, an economics professor at Howard University and chief economist for the AFL-CIO, said canceling just $10,000 in debt would violate Mr. Biden’s commitment to racial equality. He said the limited cancellation would not be enough to address racial disparities in the economy, citing reports showing that black and other non-white borrowers end up having higher average loan balances than their white peers.

“You are answering the white people’s problem,” said Mr. Spriggs. “When you make $10,000, you’re essentially saying to white people, ‘You’re okay. You have no debts.’ That is not the case with black people.”

Debt cancellation would benefit families of low-income households, he said, because they don’t have as much access to universities with higher endowments and more lavish financial aid packages.

“This is the issue of everyday, ordinary Americans who went to their local, poorly supported state university and had to pay tuition,” Mr. Spriggs said. “And that means black people.”

But by putting off the decision on student loan exemptions for months, others said Mr. Biden had already created the impression that student loan relief would be a giveaway for the privileged, rather than an issue of racial equality.

“By focusing on these mythical Ivy Leaguers, he kind of misled people,” said Astra Taylor, one of the founders of the Debt Collective, which has lobbied the White House to get rid of student loan debt. to scold. “If people believe that, I blame the president.”