Biden announces student loan forgiveness plan

President Joe Biden student loan scheme There is a potential game changer for Americans in debt. And yet impact on economy The mass is likely to be so small that it would be difficult to measure.

Biden announced on Wednesday that his administration would waive $10,000 for borrowers who make less than $125,000 per year. Low-income borrowers going to college on Pell Grant will receive up to $20,000 in student loan forgiveness.

Will get this relief in debt Some breathing room to crores of borrowers At a time when the cost of living is skyrocketing.

Crucially, canceling student loans is being combined with plans to lift federal student loan moratoriums Payment will start in January 2023. This means that many Americans who haven’t had to pay off student loans since March 2020 will need to start doing so by eating into their cash flow.

Despite fears that Biden’s student loan relief would fuel already crippling inflation, economists say the combined impact on the economy at large will be minimal.

“The end of the moratorium will impact growth and inflation, while debt waivers will support growth and inflation,” Mark Zandi, chief economist at Moody’s Analytics, told CNN. “The net of these cross-currents is quite a wash.”

Moody’s forecasts that the combined effect will reduce real GDP by 0.05 percentage points in 2023, reduce unemployment by 0.02 percentage points and cut inflation by 0.03 percentage points. In other words, a very small effect.

“We’re not talking about raising or lowering inflation by one percentage point or half a percentage point,” said Dean Baker, co-founder of the Center for Economic and Policy Research. We’re talking about a really small impact. Huh.” CNN in a phone interview. “But for individuals it makes a big difference. It wipes out more than half the debt for more than half the borrowers. It’s a big deal.”

lakhs of borrowers affectedAccording to a Department of Education analysis cited by the White House, graduate students with approximately $25,000 in debt in debt.

According to the White House, up to 43 million borrowers will be relieved from Biden’s student loan plan, which includes eliminating the remaining balances for about 20 million borrowers.

The impact of inflation would have been bigger if Biden had not imposed an income limit on debt relief or if he had called on some progressives to wipe out $50,000 in student loans.

$300 billion price tag: Of course, there is a cost to canceling student loans. And that cost would be borne by taxpayers only if deficit reduction suddenly became a bipartisan trend in Washington.

A one-time cancellation of $10,000 for every borrower earning less than $125,000 would cost the government about $300 billion, according to an estimate from the Penn Wharton budget model this week. (The Penn Wharton model did not include the cost of eliminating up to $20,000 in student loans for Pell Grant recipients).

Although $300 billion isn’t massive for a $25 trillion economy, the cost of student loan forgiveness will offset the projected federal budget deficit savings from the recently passed Inflation Reduction Act.

“All deficit reduction will be wiped out,” Mark Goldwyn, senior vice president and senior policy director on the Committee for a Responsible Federal Budget, told CNN’s Poppy Harlow.

Note that the White House has lauded the deficit reduction aspect of the Inflation Reduction Act as an important measure of inflation reduction. And it marked a significant turnaround after years of both sides adding to America’s mountain of debt to fight the Covid-19 pandemic.

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