Biden’s announcement of new student loan relief policy claims that 95% of lenders will benefit and whether it can suppress inflation is doubtful
Wall Street News
The new rules propose that up to $10,000 in federal student loan forgiveness for those earning less than $125,000 a year; up to $20,000 for those receiving federal Pell Grants; and an extension of four-month moratorium on student loan repayments . And former U.S. Treasury Secretary Summers warned that forgiving such loans would push up inflation.
On Wednesday, August 24, local time, U.S. President Biden announced new measures for student loan relief, known as the largest single-person student loan relief in history. Under the new rules, up to $10,000 of federal student loan debt can be forgiven if a borrower earns less than $125,000 a year, or is a joint tax couple with a combined annual income of less than $250,000.
In addition to meeting the above conditions, the Biden administration can forgive up to $20,000 in student debt if a borrower receives a federal Pell Grant at college. The Pell Grant is designed to help low-income students afford higher education, and regarding one-third of college students who borrow from the federal government receive the grants each year, the media said.
At the same time, the new rules also extend the suspension period for federal student loan repayments once more, extending the suspension period from August 31 this year to December 31 at the end of the year, which is equivalent to an extension of four months.
Biden said the new measures were to fulfill a promise made during the presidential campaign to give working-class and middle-class families breathing room. Officials at the U.S. Department of Education estimate that the new rules will benefit regarding 43 million borrowers and 20 million will have their student loan debts completely forgiven. The White House says more than 60 percent of federal student loan borrowers receive Pell Grants.
Speaking on student loan debt relief, Biden said 95% of student loan borrowers might benefit from the new deal. States have cut back on student loan support, leaving students liable for loan repayments. Now, a generation of Americans is saddled with “unsustainable debt.”
An earlier Wall Street News article mentioned that there is controversy over whether student loan forgiveness will fuel inflation. Rose Khattar, associate director of economic analysis at the Center for American Progress, a public policy research and advocacy think tank, said on Tuesday that $10,000 in student loan relief is not a decisive factor in fighting inflation, and it will help millions of Americans and their families. Committed to improving their current and future economic security.
Summers, a former U.S. Treasury secretary and one of the first economists to predict inflation is not temporary, warned that the student loan forgiveness program would push prices higher. He argues that the resources expended by such loan forgiveness might have been better used to help those who do not have the opportunity to attend college, and that such forgiveness often has an inflationary effect through increased tuition. He also said the “worst idea” would be to defer loan repayments.
Susan Dynarski, a professor and economist at the Harvard School of Education, believes that the suspension of student loan repayments has lasted for two years, and now the relief will not add new cash flow to borrowers. There it is.
An analysis released Tuesday estimated that student loan forgiveness might reach $300 billion to $980 billion over the next decade. Goldman Sachs believes that the biggest beneficiaries are the middle and upper classes. While more than 43 million people have nearly $1.6 trillion in federal student loans, the majority of student loans come from middle- and high-income households, with more than half of those loans, including the vast majority of large loans, from highly educated households with graduate or professional degrees .
Goldman Sachs also analyzed that the total of $300 billion in student loan forgiveness accounted for regarding 1.2% of GDP. Within a year of the plan’s implementation, its contribution to consumption growth is less than 0.1% of GDP, and it will not have a significant impact on the economy.
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