WASHINGTON – Rising cost of food, gasoline and other commodities is further complicating an intense debate between President Biden and his closest advisers on whether to fulfill his campaign promise to cancel thousands of dollars of student loan debt for tens of millions of people.
While Mr Biden has told Democratic lawmakers he will likely move forward with some sort of student loan relief, he is still pushing his team to get more details on the economic ramifications of eliminating $ 10,000 in debt for some – or all- of the nation. 43 million recipients of federal student loans.
At this spring’s meetings, Mr Biden repeatedly called for more information on whether the measure would mainly benefit wealthy private university borrowers who may not need help, according to people involved in the process. The country’s 8.6 percent inflation rate, a four-decade high, has added another level of complexity to the decision: what would it mean for the economy if the government forgives about $ 321 billion in loans?
“You’re talking about millions, possibly billions of dollars that could be spent. You should do it with your eyes wide open,” said Cedric Richmond, who left Mr. Biden’s senior adviser position last month. “He wants to make sure it’s based on equity and not aggravating disparities.”
Although Mr Biden has yet to make a decision on canceling student debt, his aides say he will do so before the end of August. The White House has been deeply divided over the political and economic effects of loan forgiveness. Biden’s chief of staff, Ron Klain, has argued that he would galvanize a base of increasingly frustrated young voters with the president. Other helpers have submitted data showing that many Americans who saved money to pay tuition for themselves or their children would be upset about the move.
Some economic advisers have argued to Mr Biden that the move could ease inflation, at least in part, by combining debt forgiveness with a resumption of interest payments on student loans, which have been stalled since the beginning of the pandemic.
Mr Biden’s deliberations are emblematic of his attempts to overcome the deep ideological divisions in the country, often within his party. According to well-known people, Mr Biden is struggling to balance his promise of delivering broad proposals to address racial and economic disparities with concerns that loan cancellation will exacerbate inflation and be seen as a gift. his image as an advocate of work. and the working class.
Mr Biden is considering a framework to alleviate student debt that his economic assistants have assured him would not aggravate inflation and could slightly alleviate price growth.
According to the plan, Mr. Biden would cancel part of the debt for certain borrowers, probably up to $ 10,000 each, which would give some of these borrowers more money to spend on goods and services, such as buying furniture. or eating out, which could create additional demand that could further drive up prices. Any move to alleviate debt would include some kind of income limits for those who meet the requirements.
But at the same time, it would put an end to a pause in interest payments on student loans for all borrowers, which was imposed in March 2020 and has been extended seven times, the last until August 31. . This would effectively force many of these borrowers to spend. less in goods and services to resume loan repayment.
Mr Biden’s aides believe that combining the two policies could draw a small amount of purchasing power from consumers in the economy. According to some estimates by the administration, both policies could bring down inflation very slightly. At the very least, the assistants say, they would cancel each other out.
“Given that fighting inflation is the president’s highest internal priority,” Jared Bernstein, a member of the White House Board of Economic Advisers, said in an interview, “the key economic fact here is that if it restarts the payment of the debt and debt relief occurs at about the same time, the net inflationary effect should be neutral. “
Designing a plan to be inflation-neutral, at worst, under government accounting would require limiting debt relief to much less than the more liberal Democrats have pushed Mr. Biden to grant.
Opponents of debt cancellation would prefer Biden to restart loan payments and not forgive any debt, which they say would be more likely to curb inflation. And they say the administration is making its inflation math look rosier by looking at the resumption of interest payments as a new policy that could work as a counterweight to the cancellation of some debt, when the pause is always it was intended to be temporary.
Administration math showing that paired policies are inflation-neutral is “not the way I’d rather think about it,” said Marc Goldwein, senior policy director of the Committee for a Responsible Federal Budget, a group of non-partisan fiscal control in Washington. , and critic of cancellation proposals. “But it’s not entirely uncommon for someone to think so.”
Mr Biden told reporters this week that he was about to make a decision on 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 the issue of inflation at the time, as well as any legislative move. in Congress.
The White House has said it would prefer Congress to pass legislation on student loan relief, but Senate Democrats have no votes, leaving executive action as the only apparent route. And pressure from Democrats who want Mr Biden to live up to his campaign promise.
During a White House meeting in May, Sen. Elizabeth Warren of Massachusetts, Chuck Schumer of New York and Raphael Warnock of Georgia, all Democrats, presented data to Mr. They say they showed that debt cancellation would benefit borrowers who did not obtain a title to refute the notion that relief would be a gift to the privileged, according to a person informed of the meeting. Vice President Kamala Harris has also met with Mr Biden to break down the groups that will benefit, another official said.
Democrats have often cited a report from Temple University showing that nearly 40 percent of full-time college students who enrolled in the 2011-12 academic year accumulated some debt but had no degree after six years.
Republicans in Congress have attacked the White House as 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 if it acts in the forgiveness of student loans, in part because of their inability to follow through on their grand proposals. “
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Corinthian schools. In its largest student loan forgiveness action ever, the Department of Education said it would cut $ 5.8 billion due to 560,000 students attending Corinthian Colleges, one of the largest for-profit college chains in the country. before it collapsed in 2015.
The department’s loan administrators fear a repeat of what happened last year, when they sent borrowers a series of warnings saying payments would resume after Jan. 31, only to repeatedly delay the resumption of payments.
“The official direction is to move forward as if it were happening, because that’s what will happen unless we actively listen to the opposite,” said Scott Buchanan, executive director of Student Loan Servicing Alliance, a commercial group, adding that administrators would begin to do so. borrowers “in the next two months.”
The president could find less political gain than some aides would imagine if he pursued the $ 10,000 pardon plan.
Proponents of her case have been working to make the actual transcript of this statement available online.
William E. Spriggs, a professor of economics at Howard University and chief economist at the AFL-CIO, said forgiving only $ 10,000 in debt would be contrary to Mr. Biden’s commitment to racial equity. He said limited cancellation would not be enough to address racial disparities in the economy, citing reports showing that black and non-white borrowers end up with higher average loan balances than their white counterparts.
“You’re answering the problem of whites,” Mr. Spriggs. “If you make $ 10,000, you’re basically telling whites,‘ You’re fine. You have no debt. That’s not the case with blacks. “
Debt forgiveness would benefit low-income households, he said, because they do not have as much access to universities with more endowments and more luxurious financial aid packages.
“This is the problem of ordinary Americans who went to their local state university with little support and had to pay tuition,” he said. Spriggs. “And that means black people.”
But by delaying the decision on student loan relief for months, others said Mr Biden had already fueled the perception that student loan relief would be a gift to the privileged, rather than a matter of equity. racial.
“By emphasizing these mythical Ivy Leaguers, you have put the wrong thought in people’s heads,” said Astra Taylor, founder of Debt Collective, which has pushed the White House to cancel student loan debt. “If people believe it, I blame the president.”