President Joe Biden will likely soon announce the fate of the student debt, as the current pause in federal student loan payments is set to expire on September 1.
About 45 million people owe approximately $1.7 trillion (or about $38,000 per person). Borrowers expect to see their obligations partially or fully eliminated.
Biden’s most likely decision appears to be debt relief of about $10,000 per borrower, sources told The Wall Street Journal. And for now, the government’s thinking is that this would only apply to people earning less than $125,000, they said.
The Biden administration has already written off about $25 billion in student loans, mostly to borrowers robbed by for-profit schools, students with disabilities and those in public service loan forgiveness programs.
Student loans can be dream crushers
The massive debt held by an estimated 14% of Americans is crushing many of their dreams. “This leaves some students broke the day after graduation. Others work for years only to find their balances higher than when they graduated,” notes a New York Times editorial.
“About 40% of borrowers never graduated from school. And a third of the debt will never be paid off, according to the Department of Education,” the Times said.
But the Times, like some other experts, does not favor total forgiveness.
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“Cancelling that debt, even at the limited amounts the White House is considering, would set a bad precedent and do nothing to change the fact that prospective students will graduate with even more debt.”
Larry Summers View
Harvard economist Larry Summers is also opposed to the complete cancellation of student debt. Former Treasury Secretary, writing on twitter, pointed to the inflationary impact of total forgiveness. Consumer prices rose 8.5% in the 12 months to July.
“I hope the government doesn’t contribute macroeconomically to inflation by offering irrationally generous relief for student loans,” Summers said.
“Student loan debt relief is an expense that increases demand and increases inflation…. It will also tend to be inflationary as tuition increases.”
There’s a better way to use the money than for student loan forgiveness, Summers said. “Every dollar spent on student loans is a dollar that could have gone to supporting those who don’t have the opportunity to go to college.”
The status quo will certainly not do, Summers said. “The worst idea would be the continuation of the current moratorium that benefits, among others, well-paid surgeons, lawyers and investment bankers.”
That doesn’t mean Summers is completely opposed to helping debtors. But, “if relief is to be granted, it must not set any precedent, it must be granted only to the first few thousand dollars of debt and to those with genuinely middle-class incomes.”