President Biden is announcing his plan to wipe away student loan debt for his base voters just before the midterms – a desperate and transparent political payoff hoping to bring Democrats to the polls. The problem with that: it’s horrible economic policy that will inflict more inflationary pain on everyone:
- An August 2022 CRFB study found that “$10,000 of debt cancellation could add up to 15 basis points up front and create additional inflationary pressure over time,” boosting inflation “far more” than the Inflation Reduction Act could lower it. (“Cancelling Student Debt Would Undermine Inflation Reduction Act,” Committee for a Responsible Federal Budget, 8/16/22)
- Former Obama economist Jason Furman noted that loan forgiveness is not “free money” and part of the student loan forgiveness “would be paid for by the 87% of Americans who do not benefit” from loan forgiveness but have to deal with inflation. (Houston Keene, “Former Obama economist slams student debt relief: It’s not ‘free money’, will ‘hurt’ almost everyone,” FOX Business, 8/19/22)
- Furman also noted that student debt relief is just “replacing one source of inflation with another.” (Jason Furman Tweet, 8/19/22)
- Obama economist Larry Summers says that forgiving student loans will be inflationary: “Student loan debt relief is spending that raises demand and increases inflation.” (Lawrence H. Summers Tweet, 8/22/22)
- Economist Art Laffer, who served on the Economic Policy Advisory Board for the Reagan Administration, said that Biden’s student loan plan will “clearly worsen” inflation. (Anna Skinner, “Larry Summers, Art Laffer Agree Biden Student Loan Plan Bad for Inflation,” Newsweek, 8/23/22)
- In April 2022, liberal columnist Matthew Yglesias wrote an op-ed arguing that student loan payment moratoriums or cancelling student loan debt altogether would be “irresponsible” and make inflation worse. (Matthew Yglesias, Op-Ed, “Student Loan Forgiveness Is an Idea Whose Time Has Gone,” Bloomberg, 4/10/22)
- Even Biden’s own White House feared forgiving student debt would send inflation “skyrocketing.” (Ayelet Sheffey and Ben Winck, “Biden’s White House fears canceling student debt will drive inflation even higher — and that restarting loan payments might help avoid that,” Business Insider, 7/6/22)
Similarly, the Biden Administration’s student loan payment moratorium is costing the federal government tens of billions of dollars and contributing to inflation; extending it further could increase inflation even more:
- By the end of FY2021, Biden’s student loan payment moratorium had cost the federal government $98.4 billion, and it continues to cost $4.3 billion every month. (Erika Giovanetti, “Student loan payment pause has cost the government $100B,” FOX Business, 1/20/22)
- In July 2022, CRFB estimated that extending the student loan payment pause would boost “the inflation rate by up to 20 basis points.” (“Extending the Student Loan Payment Pause is Bad Policy,” Committee for a Responsible Federal Budget, 7/28/22)
- In April 2022, Obama economist Larry Summers called Biden’s student loan moratorium “inappropriate at a time when the economy is overheated” because it “will be injecting money into the economy.” (Twitter, 4/5/22)
- Larry Summers called continuing the current moratorium “the worst idea.” (Twitter, 8/22/22)
- In April 2022, Liz Peek wrote an op-ed arguing that Biden’s student loan moratorium “is bad policy and will make inflation worse.” (Liz Peek, Op-Ed, “Student loan moratorium is another Biden mistake that will drive inflation higher,” The Hill, 4/7/22)
- In April 2022, Jason Furman said that student loan payment moratoriums increase inflation by “adding fuel to the fire.”(Myah Ward, “The hunt for peak inflation,” Politico Nightly, 4/15/22)
According to the Committee for a Responsible Federal Budget, cancelling $10,000 in debt for those with incomes under $150,000 combined with extending the payment pause through the end of 2022 would wipe out any deficit reduction from the Inflation Reduction Act. And economists from across the spectrum have described the policy as “the least effective stimulus imaginable” and a “regressive” policy that unfairly “benefits recent college graduates and hurts most everyone else.”
There is only one motivation for the Biden Administration to follow through with this policy even in the face of clear evidence it makes no economic sense and will only exacerbate problems affecting working families: a transparent political payoff before the midterms:
- In July 2022, Bloomberg reported that the plan is purely political and “intended to appeal to voters under age 30, whose enthusiasm—or lack thereof—in November could be key to determining whether Democrats retain control of the House and Senate.” (Nancy Cook, “Biden Considers New Pause on Paying Back Student Loans, $10,000 Relief,” Bloomberg, 7/26/22)
- Rep. Alexandria Ocasio-Cortez tweeted that it is “delusional” to think that Democrats can get reelected without acting on student debt: (Alexandria Ocasio-Cortez Tweet, 12/17/21)
- LA Times Headline: “Elizabeth Warren knows how Democrats can win the midterms. It starts with canceling student loan debt.” (Jean Guerrero, “Column: Elizabeth Warren knows how Democrats can win the midterms. It starts with canceling student loan debt,” Los Angeles Times, 4/21/22)
- Wall Street Journal Headline: “Student Loan Forgiveness Is a Political Bribe” (Phil Gramm and Mike Solon, “Student Loan Forgiveness Is a Political Bribe,” Wall Street Journal, 6/29/22)
So it’s no surprise Democrats in tough elections are clinging to this policy as a cash-for-votes strategy they hope will salvage their political fortunes:
- Raphael Warnock cosponsored legislation calling for the president to cancel up to $50,000 per borrower in student loan debt. (S.R. 46, Introduced 02/08/21)
- Maggie Hassan sponsored legislation providing debt relief of up to $20,000 for founders and employees of start-ups. (S.R. 4903, Introduced 11/17/20)
- Catherine Cortez Masto introduced legislation calling for the forgiveness of some student loans for low- and middle-income Americans. (Sen. Catherine Cortez Masto, “Cortez Masto Introduces Legislation to Reform Student Loan Program, Prioritize Working Nevadans,” Press Release, 6/23/22)
- John Fetterman released a YouTube video entitled, “We need to take action to cancel student loan debt.” (John Fetterman, “We need to take action to cancel student loan debt,” YouTube, 2/17/21)
“Democrats are once again putting politics and their liberal ideology over what’s best for the country. They spent us into inflation, raised taxes in a recession, and now they’re paying off their voters to get them to the polls, even if it means everyone else pays more. There is only one way to stop their reckless mismanagement of the country: electing a Republican Senate majority.” -SLF Communications Director Jack Pandol