WASHINGTON — Soaring prices for food, gasoline and other basics are further complicating a heated debate between President Biden and his closest advisers over whether to follow through on his campaign promise to cancel thousands of dollars in student loan debt for tens of millions of people.
While Mr. Biden has signaled to Democratic lawmakers that he will likely move forward with some form of student loan relief, he continues to press his team for details on the economic ramifications of erasing. $10,000 in debt for some – or all – of the country. 43 million federal student loan recipients.
In meetings this spring, Mr. Biden repeatedly asked for more data on whether the move would primarily benefit wealthy borrowers from private universities who may not need the aid, according to people involved in the process. The country’s 8.6% inflation rate, a four-decade high, added another layer of complexity to the decision: what would it mean for the economy if the government canceled some $321 billion in loan dollars?
“You are talking about millions, even billions of dollars that could be spent. You should do it with your eyes wide open,” said Cedric Richmond, who stepped down as Biden’s senior adviser last month. “He wants to make sure it’s based on fairness and doesn’t exacerbate disparities.”
While Mr. Biden has yet to make a decision on canceling student debt, his aides say he will do so before the end of August. The White House has been deeply divided over the political and economic effects of the loan forgiveness. Mr Biden’s chief of staff, Ron Klain, argued that this would galvanize a base of young voters increasingly frustrated with the president. Other aides presented data showing that many Americans who saved money to pay for their or their children’s tuition would be unhappy with the decision.
Some economic advisers have argued to Mr Biden that the move could actually relieve inflation, at least a little, if he combines debt cancellation with a restart of student loan interest payments, which have been interrupted since the start of the pandemic.
Mr. Biden’s deliberations are emblematic of his attempts to straddle the deep ideological divisions in the country, often within his party. According to people familiar with his thinking, Mr Biden is struggling to balance his pledge to bring forward sweeping proposals to address racial and economic disparities with worries that loan forgiveness would exacerbate inflation and be viewed as a giveaway. , undermining his image as a champion of labour. and the working class.
Mr Biden is considering a framework for student debt relief that his economic aides say would not worsen inflation and could potentially dampen price growth slightly.
Under the plan, Mr. Biden would forgive some borrowers’ debt, likely up to $10,000 each, which would effectively give some of those borrowers more money to spend on goods and services, like buying furniture or dining out, potentially creating additional demand that could drive prices up even further. Any debt relief measure would include some type of income caps for those who qualify.
But at the same time, it would end a pause on student loan interest payments for all borrowers, which was imposed in March 2020 and has been extended seven times, most recently until August 31. This would effectively force many of these borrowers to spend less on goods and services to resume their loan repayments.
Aides to Mr Biden believe that combining the two policies could remove a small chunk of consumer purchasing power from the economy. According to some estimates by the administration, the two policies could bring inflation down very slightly. At a minimum, aides say, they would cancel each other out.
“Given that fighting inflation is the president’s top national priority,” Jared Bernstein, a member of the White House Council of Economic Advisers, said in an interview, “the key economic fact here is that if payment debt restarts and debt relief was to occur around the same time, the net inflationary effect should be neutral.
Designing an inflation-neutral plan, at worst, according to the administration’s accounting, would require limiting debt relief to far less than more liberal Democrats have pushed Mr. Biden to deliver.
Opponents of debt cancellation would prefer Mr Biden to boost loan repayments and not waive any debt, which they say would be more likely to curb inflation. And they say the administration is making its inflation calculations more attractive by viewing the resumption of interest payments as a new policy that could offset the cancellation of some debt, when the pause was still only intended. to be temporary.
The administration’s calculations showing that the policy pairings are inflation-neutral “isn’t the way I would prefer to think about it,” said Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget, a group of nonpartisan budget watchdog in Washington. , and a critic of the cancellation proposals. “But it’s not totally weird for someone to think about it that way.”
Mr Biden told reporters this week that he was close to making a decision on student debt. A White House official, speaking on condition of anonymity to discuss internal discussions, said the administration wanted to wait until the end of August to assess how much of an issue inflation was. here there, as well as any legislative movement in Congress.
The White House has said it would prefer Congress to pass student loan relief legislation, but Senate Democrats are running out of votes, leaving executive action as the only apparent path. And pressure is mounting from Democrats who want Mr. Biden to keep his campaign promise.
At a meeting at the White House in May, Senators Elizabeth Warren of Massachusetts, Chuck Schumer of New York and Raphael Warnock of Georgia, all Democrats, presented data to Mr Biden showing that debt cancellation would benefit to borrowers who did not graduate to refute the idea that the relief would be a gift to the privileged, according to a person briefed on the meeting. Vice President Kamala Harris also met with Mr. Biden to break down the groups that would benefit, another official said.
Democrats have often cited a Temple University report showing that nearly 40% of full-time undergraduates who enrolled in the 2011-2012 academic year racked up debt but didn’t graduate. graduation after six years.
Republicans in Congress have attacked the White House as being fiscally irresponsible. Representative Virginia Foxx of North Carolina, the top Republican on the Education and Labor Committee, said in a letter to the Department of Education this month that she was “gravely concerned that the department will further harm to borrowers and taxpayers if he acts on student loan forgiveness, in part because of his failure to follow through on his grandiose proposals.
Student loans: essential things to know
Corinthian colleges. In its biggest student loan forgiveness action ever, the Department of Education said it would eliminate $5.8 billion owed by 560,000 students who attended Corinthian Colleges, one of the biggest chains of for-profit universities in the country before its collapse in 2015.
Department loan managers fear a repeat of what happened last year, when they sent borrowers a series of notices that payments would resume after January 31 – only for payments to resume be repeatedly delayed.
“The official direction is to walk as if it’s happening, because it’s going to happen unless we actively hear otherwise,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a group commercial, adding that repairers would begin to educate borrowers “in the coming months”.
The president may find less political gain than some aides imagine if he goes ahead with the $10,000 pardon plan.
Some borrower advocates and labor groups have warned that moving forward with a limited form of relief with income caps could fuel more frustration among civil rights organizations and young voters. .
William E. Spriggs, an economics professor at Howard University and chief economist for the AFL-CIO, said writing off just $10,000 in debt would run counter to Mr. Biden in favor of racial equity. He said limited cancellation would not be enough to address racial disparities in the economy, citing reports showing that black and other non-white borrowers end up with higher average loan balances than their white peers.
“You’re answering the white problem,” Mr Spriggs said. “If you make $10,000, you’re basically saying to white people, ‘It’s fine. You don’t have any debt. Black people don’t.’
Debt cancellation would benefit families in lower-income households, he said, because they don’t have as much access to universities with higher endowments and more lavish financial aid packages.
“It’s the problem of ordinary, everyday Americans who went to their local, poorly supported state university and had to pay tuition,” Spriggs said. “And that means black people.”
But by delaying the decision on student loan relief for months, others said Mr Biden had already fueled the perception that student loan relief would be a gift to the privileged, rather than a matter of racial equity.
“By focusing on these mythical Ivy Leaguers, he kind of puts the wrong thought in people’s heads,” said Astra Taylor, founder of the Debt Collective, which lobbied the White House to write off the debt of student loan. “If people believe that, I kind of blame the president.”