Inflation complicates Biden deliberations on student loan forgiveness

WASHINGTON — The soaring cost of food, gasoline and other essentials is further complicating a tense debate between President Biden and his closest advisers over whether or not to follow through on his campaign promise to pay off thousands of dollars of student loan debt. 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 pressing his team for details on the economic ramifications of eliminating $10,000 of debt for some, or all of the nation. 43 million recipients of federal student loans.

In meetings this spring, Mr. Biden repeatedly asked for more data on whether the measure would primarily benefit affluent students at private universities who might not need the aid, according to people involved in the process. The country’s 8.6 percent inflation rate, the highest in four decades, has added another layer of complexity to the decision: What would it mean for the economy if the government forgives some $321 billion in loans?

“You are talking about millions, possibly billions of dollars that could be spent. You need to do it with your eyes wide open,” said Cedric Richmond, who resigned as Biden’s senior adviser last month. “You want to make sure it’s based on fairness and doesn’t exacerbate disparities.”

While Mr. Biden has yet to make a decision on canceling student debt, his advisers 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 young voter base increasingly frustrated with the president. Other attendees have presented data showing that many Americans who saved money to pay for tuition for themselves or their children would resent the move.

Some economic advisers have argued to Biden that the move could actually ease inflation, at least a little, by combining debt forgiveness with a restart of interest payments on student loans, which have been halted since early the pandemic.

Biden’s deliberations are emblematic of his attempts to bridge the country’s deep ideological divisions, often within his party. According to people familiar with his thinking, Mr. Biden is struggling to balance his promise to put forth sweeping proposals to address racial and economic disparities with concerns that the loan cancellation will exacerbate inflation and be seen as a giveaway, that would undermine his image as a defender of workers. and the working class.

Mr. Biden is considering a framework for student debt relief that his economic advisers assured him would not exacerbate inflation and could slightly ease price growth.

Under the plan, Biden would write off some of certain borrowers’ debt, likely up to $10,000 each, effectively giving some of those borrowers more money to spend on goods and services, like buying furniture or dining out, which could create additional demand that could push prices even higher. Any debt relief move would include some kind of income limit for those who qualify.

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

Biden aides believe that combining the two policies could take a small amount of consumer spending power out of the economy. According to some administration estimates, the two policies could reduce inflation very slightly. At a minimum, attendees say, they would cancel each other out.

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

Crafting a plan that is inflation-neutral, at worst, according to administration accounting would require limiting debt relief to much less than what more liberal Democrats have pushed Biden to provide.

Opponents of debt cancellation would prefer that Biden restart loan payments and not forgive any debt, which they say would have a better chance of curbing inflation. And they say the administration is making its inflation math look more optimistic by viewing the resumption of interest payments as a new policy that could work as a counterweight to writing off some debt, when the pause was always intended to be only temporary.

The administration’s math showing the combined policies are inflation-neutral “isn’t the way I’d prefer to think about it,” said Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget, a fiscal watchdog group. nonpartisan in Washington. , and a critic of the cancellation proposals. “But it’s not entirely strange for someone to think of it that way.”

Mr. Biden told reporters this week that he was close to making 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 how problematic inflation is by then, as well as any legislative moves in Congress.

The White House has said it would prefer to see Congress pass legislation on student loan relief, but Senate Democrats lack the votes, leaving executive action the only apparent path. And pressure is building from Democrats who want Biden to follow through on his campaign promise.

During 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 Mr. Biden showing that debt cancellation would benefit borrowers who they did not get a title to refute the notion that the relief would be a gift to the privileged, according to a person briefed on the meeting. Vice President Kamala Harris also met with Biden to break down the groups that would benefit, another official said.

Democrats have often cited a Temple University report showing nearly 40 percent of full-time college students who enrolled in the 2011-12 academic year racked up some debt but didn’t earn a degree after six years. .

Republicans in Congress have attacked the White House as fiscally irresponsible. Rep. Virginia Foxx of North Carolina, the top Republican on the Education and Labor Committee, said in a letter to the Education Department this month that she was “gravely concerned that the department will further harm borrowers and taxpayers if it acts on student loan forgiveness, in part because of their inability to carry out their grandiose proposals.”

The department’s loan servicers fear a repeat of what happened last year, when they sent borrowers a series of notices saying payments would restart after Jan. 31, only to have the resumption of payments repeatedly delayed. .

“The official direction is to go ahead as if it’s happening, because that’s what’s going to happen unless we actively listen otherwise,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group, adding that Servicers would begin contacting borrowers “in the coming months.”

The president could make less political gain than some advisers imagine if he follows the $10,000 forgiveness plan.

Some advocates for borrowers and labor groups have warned that moving forward with a limited form of income-capped relief could lead to more frustration among civil rights organizations and younger voters.

William E. Spriggs, an economics professor at Howard University and chief economist for the AFL-CIO, said forgiving just $10,000 of the debt would run counter to Biden’s commitment to racial equity. He said limited write-off would not be enough to address racial disparities in the economy, citing reports showing black and other non-white borrowers end up with higher average loan balances than their white peers.

“He’s responding to the white problem,” Spriggs said. “If you make $10,000, you’re basically telling white people, ‘You’re fine. You have no debt. That’s not the case for blacks.”

Debt forgiveness would benefit low-income families, he said, because they don’t have as much access to larger-endowment colleges and more lavish financial aid packages.

“This is the problem of ordinary Americans who attended their local state university with little support and had to pay tuition,” Spriggs said. “And that means black people.”

But by delaying a decision on student loan relief for months, others said Biden had already fueled the perception that student loan relief would be a giveaway to the privileged, rather than an issue of racial equity.

“By emphasizing these mythical Ivy Leaguers, he’s giving people the wrong idea,” said Astra Taylor, founder of Debt Collective, which has lobbied the White House to write off student loan debt. “If people believe that, I blame the president.”

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