প্রকাশ: 26/08/2022
President
Joe Biden said on Wednesday the US government will forgive $10,000 in student
loans for millions of debt-saddled former college students, keeping a pledge he
made in the 2020 campaign for the White House.
The move
could boost support for his fellow Democrats in the November congressional
elections, but some economists said it may fuel inflation and some Republicans
in the US Congress questioned whether the president had the legal authority to
cancel the debt, reports Reuters.
Debt
forgiveness will free up hundreds of billions of dollars for new consumer
spending that could be aimed at homebuying and other big-ticket expenses,
according to economists who said this would add a new wrinkle to the country's
inflation fight.
The
actions are "for families that need them the most - working- and
middle-class people hit especially hard during the pandemic," Biden said
during remarks at the White House. He pledged no high-income households would
benefit, addressing a central criticism of the plan.
"I
will never apologize for helping working Americans and middle class, especially
not to the same folks who voted for a $2 trillion tax cut that mainly benefited
the wealthiest Americans and the biggest corporations," Biden said,
referring to a Republican tax cut passed under former President Donald Trump.
Borrower
balances have been frozen since the beginning of the Covid-19 outbreak, with no
payments required on most federal student loans since March 2020. Many
Democrats had pushed for Biden to forgive as much as $50,000 per borrower.
Republicans
mostly opposed student loan forgiveness, calling it unfair because it will
disproportionately help people earning higher incomes.
"President
Biden's student loan socialism is a slap in the face to every family who
sacrificed to save for college, every graduate who paid their debt, and every
American who chose a certain career path or volunteered to serve in our Armed
Forces in order to avoid taking on debt," Senate Minority Leader Mitch
McConnell said Wednesday.
The
administration has yet to determine the price tag for the package, which will
depend on how many people apply for it, White House domestic policy adviser
Susan Rice told reporters. Student loans obtained after June 30 this year are
not eligible, she said.
White House
Press Secretary Karine Jean-Pierre told reporters the administration has legal
authority to forgive the debt under a law allowing such action during a
national emergency such as a pandemic. Earlier, Republican US Representative
Elise Stefanik had called the plan "reckless and illegal."
American
university tuition fees are substantially higher than in most other rich
countries, and US consumers carry $1.75 trillion in student loan debt, most of
it held by the federal government. Biden said other countries could bypass the
United States economically if students are not offered economic relief.
PANDEMIC
PAUSE, PELL GRANTS
The
administration will extend a Covid-19 pandemic-linked pause on student loan
repayment to year end, while forgiving $10,000 in student debt for single
borrowers with annual income under $125,000 a year or married couples who earn
less than $250,000, the White House said.
Some 8
million borrowers will be affected automatically, the Department of Education
said; others need to apply for forgiveness.
The
government is also forgiving up to $20,000 in debt for some 6 million students
from low-income familieswho received federal Pell Grants, and proposing a new
rule that protects some income from repayment plans and forgives some loan
balances after 10 years of repayment, the Education Department said.
A New York
Federal Reserve study shows that cutting $10,000 in federal debt for every
student would amount to $321 billion and eliminate the entire balance for 11.8
million borrowers, or 31 per cent of them.
INFLATION
IMPACT
A senior
Biden administration official told reporters the plan could benefit up to 43
million student borrowers, completely cancelling the debt for some 20 million.
After
December 31, the government will resume requiring payment on remaining student
loans that were paused during the pandemic. The official said this would offset
any inflationary effects of the forgiveness. Payment resumptions could even
have a dampening effect on prices, the official said.
Former US
Treasury secretary Larry Summers disagreed. He said on Twitter that debt relief
"consumes resources that could be better used helping those who did not,
for whatever reason, have the chance to attend college. It will also tend to be
inflationary by raising tuitions."
Similarly
Jason Furman, a Harvard professor who headed the Council of Economic Advisers
during the Obama administration, said debt-cancellation would nullify the
deflationary powers of the Inflation Reduction Act. "Pouring roughly half
trillion dollars of gasoline on the inflationary fire that is already burning
is reckless," he said.
Moody's analytics chief economist Mark Zandi sided with the White House, saying the resumption of billions of dollars per month in student loan payments "will restrain growth and is disinflationary."
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