The inflation crisis in the US will only worsen if President Biden It cancels out large portions of student debt, experts warn.
Maya McGuinness, chair of the Committee on Responsible Federal Budget (CRFB), cautioned that “student debt cancellation may be a very attractive policy talking point, but it is not good policy.”
“It is costly, inflationary, poorly targeted, and fails to address the root problems in our higher education financing system,” McGuinness said in a statement Thursday. “Complete debt cancellation would be a massive giveaway to wealthy doctors and lawyers, exacerbate our inflation crisis, and cost nearly the entirety of our 2017 tax cuts.”
“Even partial debt cancellation would be costly, regressive and inflationary,” she continued. “A debt forgiveness of $10,000 per person would cost what it costs everyone before kindergarten or a full extension of ACA’s extended benefits.”
“Either the president is serious about reducing the deficit and controlling inflation, or he’s not doing it. The White House can’t control it either way,” McGuinness added. “We need to focus on a serious and effective agenda that prioritizes sound policies, not poorly directed political giveaways.”
Noah Weinrich, a spokesperson for Heritage Action, a campaign-side sister organization to conservative think-tank The Heritage Foundation, told Fox News Digital that canceling student debt “would raise inflation by as much as 20%.”
“Make no mistake: This is a handout for wealthy, educated voters that will come at the cost of higher food, gas, and energy prices for working American families who won’t see a cent of relief — not to mention higher taxes,” he continued. “This is a ridiculous election year gimmick that will punish most Americans.”
Brian Riddell, a senior fellow at the Manhattan Institute, was less certain about the inflationary impact of debt cancellation, although he made clear that he still considered it bad economic policy.
“If the president tries to permanently cancel a significant portion of student debt, that could add 0.3% to this year’s inflation rate. Again, that’s not helpful, but it’s not a major driver of inflation,” Riedel told Fox News Digital.
“The problems with student loan forgiveness are that the policy will shift these obligations to taxpayers (which will eventually increase deficits and taxes), benefit high-income lawyers and physicians disproportionately, and also signal to current and future college students that they should borrow. More with anticipation of loan forgiveness programs in the future.”
The CRFB warned in February, when inflation was at a level 7.48% and countingthat “cancellation of all $1.6 trillion student debt will raise the inflation rate” by between 0.1% and 0.5% per year after repayment begins.
The organization has set the cost for the federal government to cancel all student debt in the United States 1.6 dollars trillion — Biden’s signature funds nearly $1.9 trillion for the US bailout — “with household balance sheets improved by a similar amount” and forecast “$80 billion in payments reduced in the first year.”
“The inflation effect of canceling $1.6 trillion of student debt would be small compared to the massive amount involved, as payments are spread out over time and the benefits of debt cancellation go primarily to higher-income earners, who tend to save more of their money,” CRFB’s analysis said.
“However, the increase is significant for core inflation. It would be a 4-20% increase relative to the most recent Fed inflation forecast and a 5-25% increase above target.”
Even a modest increase in inflationary pressures could fuel the current inflation dynamics, increasing the risks of a wage-price vortex and making it difficult for the Federal Reserve to re-fix inflation expectations around its current target, the organization wrote.
They also estimated that “much of this increase will also occur if the Biden administration continues to defer student loan repayments for another year, as this will result in the same increase in individuals’ cash flow.”
The CRBF cautioned that “along with adding $1.6 trillion to the national debt and benefiting high-income individuals disproportionately, we find that canceling student debt will drive prices up faster than they already are, exacerbating inflationary pressures.”
On the other side of the cancellation conversation, the CRBF predicted an increase in “family consumption by $70 to $95 billion once higher wealth impact was considered” if student debt were to be canceled, but noted that the current US economy simply cannot meet market demand in spite of From “high disposable income, strong balance sheet, persistent supply constraints, and other factors”.
“This disconnect helps explain why the inflation rate reached its highest level in 40 years last year, and why more increased demand could drive up prices rather than increase production,” the CRFB analysis said.
In addition, the CRBF said their estimates did not take into account the broad impact that would affect tuition prices in the event of student debt cancellation.
“Prospective students may anticipate future rounds of debt cancellation, which may increase their willingness to take on more debt, thereby reducing their sensitivity to the prices charged by schools, and ultimately making it easier for schools to raise prices faster than they already do,” the organization writes.
White House Press Secretary Jen Psaki was asked by Fox News’ Jackie Heinrich about concerns about rising inflation due to possible debt cancellation, and responded that “the president is looking at the impact of student loans” and that it was “to make sure these loans work. Getting forgiveness is more important than Tax cuts for millionaires, billionaires and corporations.
“We can make decisions about where we invest and where we think we can make the tax system more fair,” Psaki said. “But there isn’t even a bill going through Congress, and we haven’t put a proposal together. So I don’t. Those numbers are not based on any fact at the moment.”
The inflation warning about widespread student loan cancellation comes at a time when Americans are facing higher prices across the board and a declining dollar.
Inflation surged throughout Biden’s first term, and economists have cited Biden’s signature multibillion-dollar spending package as one of the drivers of inflation.