Canceling $10,000 in debt for many working-class Americans with federal student loans would settle balances for about a third of borrowers and cut debt by at least half for another 20%. But canceling too much student debt risks worsening inflation, experts say. File Photo by Yuri Gripas/UPI | License Photo
Aug. 24 (UPI) — After thinking over the issue, President Joe Biden is expected to announce a decision Wednesday to cancel a portion of student loan debt for millions of borrowers and extend a pause on loan payments that’s set to expire next week.
Biden has said that he would make a decision about whether he would cancel the loans before the end of August.
The president’s plan will include at least $10,000 in loan forgiveness for borrowers who earn less than $125,000 annually and is expected to apply only to undergraduate debt.
The Washington Post, The Hill, USA Today and NBC News reported that Biden will make the announcement Wednesday.
Last weekend, Education Secretary Miguel Cardona said that Biden’s administration has “been talking daily” about student debt and that the president would unveil a plan “within the next week or so.”
Biden has been on vacation for the past two weeks in South Carolina and Delaware. He was scheduled to return to the White House later Wednesday morning.
The $10,000 figure would fulfill a campaign promise from Biden and mark the largest forgiveness of federal student loans per individual to date. It’s believed that canceling the debt will cost the government about $300 billion.
Canceling $10,000 in debt for many working-class Americans with federal student loans would settle the balances of about a third of borrowers and cut total debt by at least half for another 20%, according to Department of Education data.
Biden on Wednesday is also expected to extend the pause on loan payments that was ordered in response to the COVID-19 pandemic. The pause is set to expire on Aug. 31, but Biden’s extension is expected to be about four months.
According to a recent survey, about 30% of respondents said there should be no loan forgiveness for anyone, while 32% favored loan forgiveness for all who have student debt. A plurality, 34%, said that only those in need should have their loans forgiven. File Photo by Bill Greenblatt/UPI
As the White House has worked to formulate a plan, both advocates and opponents of wide-scale student loan forgiveness have presented Biden with their pitches.
Senate Democratic leader Chuck Schumer and Sen. Elizabeth Warren, D-Mass., both spoke with White House Chief of Staff Ron Klain recently to request that significant amounts of debt be forgiven, the Post reported.
While canceling $10,000 for many Americans satisfies a campaign promise for Biden, some progressive Democrats are likely to think that’s not enough. Some have called for more debt to be canceled and the NAACP pressed the administration to cancel up to $50,000 per borrower, citing higher loan burdens on Black Americans.
“$10,000 alone is meager, to say the least — it won’t address the magnitude of the problem,” NAACP President Derrick Johnson said according to the Post.
However, wiping out too much student loan debt carries with it an economic risk. Lawrence Summers and Jason Furman — prominent Democratic economists who served in prior administrations — have argued that forgiving too much debt runs the risk of worsening inflation, by increasing spending — an issue that Democrats are already facing ahead of the midterm elections in November.
Along with the inflation risk, Summers and Furman say Biden’s plan could end up mostly helping high-income graduates who can afford to pay their loans back.
“This is redistribution, and there’s nothing wrong with redistribution — if it was from the middle to the bottom. Much of this is redistribution from the middle to the upper-middle,” Furman said.
A CNBC poll released Monday found that almost 60% of Americans shared concern that student loan forgiveness could worsen inflation.
About 30% of respondents said there should be no student loan forgiveness for anyone, while 32% were in favor of loan forgiveness for all who have student debt. A plurality, 34%, said that only those in need should have their loans forgiven.
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