Inflation complicates Biden’s deliberations on student loan forgiveness

WASHINGTON – The rising cost of food, gasoline and other basic goods is complicating a heated debate between President Biden and his closest advisers about whether to follow through on his campaign pledge to cancel thousands of dollars in student loan debt for tens of millions of people.

while mr. Biden has signaled to Democratic lawmakers that he is likely to move forward with some form of student loan forgiveness, and is still pressing his team for details about the economic fallout of canceling $10,000 of debt for some — or all — of the country’s 43 million federal dollars. Student loan holders.

At meetings this spring, Mr. Biden has repeatedly asked for more data on whether the move will primarily benefit well-off borrowers from private universities who may not need help, according to people involved in the process. The country’s 8.6 percent inflation rate, the highest in four decades, added another layer of complexity to the decision: What would it mean for the economy if the government gave up $321 billion in loans?

“You’re talking about millions, maybe billions of dollars that could be spent. You should do it with eyes wide open,” said Cedric Richmond, who resigned as senior advisor to Mr Biden last month. “He wants to make sure it’s based on justice and not lead exacerbating inequalities.

while mr. Biden has yet to make a decision on canceling student debt, and his aides say he will do so before the end of August. The White House is deeply divided over the political and economic implications of loan forgiveness. the master. Biden’s chief of staff, Ron Klein, argued that it would stimulate a base of young voters who are growing increasingly frustrated with the president. Other aid provided data showing that many Americans who saved money to pay tuition for themselves or their children would resent the move.

Some economic advisors brought the case to Mr. Biden said the move could actually ease inflation, at least a little, if he pairs debt forgiveness with repaying interest payments on student loans, which has been paused since early in the pandemic.

the master. Biden’s deliberations are emblematic of his attempts to bridge the country’s deep ideological divisions, often within his own party. According to people familiar with his thinking, Mr. Biden is struggling to balance his promise of comprehensive proposals to address racial and economic disparities with concerns that loan cancellations will exacerbate inflation and be seen as a boon, undermining his image as an advocate for workers and the working class.

the master. Biden is considering a framework for student debt relief, his economic aid assuring him that it would not exacerbate inflation and could dampen price growth slightly.

Under the plan, said Mr. Biden will cancel some of the debts to some borrowers, potentially as high as $10,000 each, giving some of those borrowers more money to spend on goods and services, such as buying furniture or eating out, which could lead to an increase in demand that could increase the prices. Any step for debt relief will include some sort of income limit for those who qualify.

But at the same time, it will end the temporary suspension of student loan interest payments to all borrowers, which was imposed in March 2020 and has been extended seven times, most recently until August 1. 31. This will force many of these borrowers to reduce spending on goods and services to resume their loan payments.

the master. Biden aides believe that the coupling of the two policies can take a small amount of consumers’ purchasing power out of the economy. By some administration estimates, the two policies could bring down inflation very slightly. At least, the aid says, they will cancel each other out.

“Given that fighting inflation is the president’s number one 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 debt repayment and debt relief resume around the same time, it should be The net inflationary effect is neutral.”

Designing a plan that is inflation-neutral, at worst, under administration accountability would require limiting debt relief to much less than what the more liberal Democrats have pushed for Mr. Biden to grant.

opponents of debt cancellation prefer mr. Biden repays loan payments and does not tolerate any debt, which they say will have a better chance of bringing down inflation. And they say the administration is making its inflation calculations look more optimistic by looking at the resumption of interest payments as a new policy that could act as a stabilizing force for canceling some debt, when the pause was always intended to be only temporary.

Mark Goldwyn, senior policy director at the Committee on Responsible Federal Budget, a nonpartisan financial watchdog group in Washington, said the administration’s calculations showing dual policies are inflation-neutral “is not the way I’d like to think it.” , and a critic of the cancellation proposals. “But it’s not entirely unusual for someone to think of it that way.”

the master. Biden told reporters this week that he is about to make a decision on student debt. A White House official, who spoke on the condition of anonymity to discuss internal discussions, said the administration wanted to wait until the end of August to assess the extent of the inflation problem by then, as well as any legislative movement in Congress.

The White House has said it would prefer Congress to pass legislation on student loan forgiveness, but Senate Democrats lack the vote, leaving executive action the only apparent path. Pressure is mounting from Democrats who want mr. Biden delivers 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 the statements to Mr. Biden has shown that debt forgiveness will benefit borrowers who fail to earn a score to capitalize on the idea that forgiveness would be a boon to high achievers, according to a person familiar with the meeting. Vice President Kamala Harris also met with Mr. Another official said Biden is dismantling the groups that will benefit.

Democrats often cite a report from Temple University showing that nearly 40 percent of full-time undergraduates who enrolled in the 2011-12 school year accumulated some debt but did not earn a degree after six years.

Republicans in Congress have attacked the White House, calling it fiscally irresponsible. Rep. Virginia Fox 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 “deeply concerned that the department would do more harm to borrowers and taxpayers if it acted on student loan forgiveness, in due That’s partly to her inability to follow through on her outsized proposals.”

The department’s loan providers fear a repeat of last year, when they sent borrowers a series of notices saying payments would resume after Jan. 1. 31 – only to delay the resumption of payments repeatedly.

“The official trend is to move forward as if it were happening, because that’s what will happen unless we actively hear otherwise,” said Scott Buchanan, executive director of the Student Loan Service Alliance, a trade group, adding that servants will start reaching out to borrowers “in the next two months.”

The president may find fewer political gains than some aides imagine if he pursues the $10,000 tolerance plan.

Some advocates for borrowers and labor groups have warned that moving forward with a limited form of easing with caps on income could lead to more frustration among civil rights organizations and young voters.

William E. Spriggs, a professor of economics at Howard University and chief economist at the AFL-CIO, said that only $10,000 of debt forgiveness would conflict with Mr. Biden’s commitment to racial equality. He said 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 with higher average loan balances than their white peers.

“You are answering the problem of white people,” Mr. Spriggs said. “If you get $10,000, you say to whites, ‘You’re fine. You don’t have any debt. That’s not the case with blacks.'”

Debt forgiveness would benefit families of lower income families, he said, because they do not have as much access to universities with higher endowments and more generous financial aid packages.

“This is the case for the average Americans who go to their local universities with poor support and who have had to pay tuition fees.” Spriggs said. “It means blacks.”

But by postponing the student loan forgiveness decision for months, others said Mr. Biden has already fueled a perception that student loan forgiveness will be a boon to the privileged, not a matter of racial justice.

“By emphasizing these legendary Ivy Leagues, he kind of put the wrong thinking in people’s heads,” said Astra Taylor, founder of the Collective Debt Group, which lobbied the White House to cancel student loan debt. “If people think so, I kind of blame the president.”

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