The Biden administration announced a plan for student debt cancellation on Wednesday, but economists and those normally aligned with the Democratic White House have been voicing their concerns.
Jason Furman, a former Obama administration economist, has been particularly vocal in calling out the faults of Biden’s new plan and has called it “reckless” and dangerous in light of the continuing inflation crisis.
“Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless. Doing it while going well beyond one campaign promise ($10K of student loan relief) and breaking another (all proposals paid for) is even worse,” Furman tweeted.
Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless. Doing it while going well beyond one campaign promise ($10K of student loan relief) and breaking another (all proposals paid for) is even worse.
— Jason Furman (@jasonfurman) August 24, 2022
The administration’s plan directs the Department of Education to provide up to $10,000 in debt cancellation for those who have an individual income of less than $125,000, or $250,000 for married couples, according to the White House fact sheet.
The Department of Education will also cap monthly loan payments, so that individuals are not overextending their finances, as well as reduce the price of college by holding schools accountable for tuition hikes.
On top of that, the administration also plans to repair the Public Service Loan Forgiveness (PSLF) program so that any borrower who worked for a nonprofit, in the military or in any form of federal, state or local government will receive credit toward loan forgiveness.
These steps work towards Biden’s goal of making a “comprehensive effort to address the burden of growing college costs and make the student loan system more manageable for working families,” the fact sheet outlined.
Was Biden’s student loan cancellation legal?
But while the administration has argued that this will help individuals and, thus, the whole economy, economists have doubts.
In multiple tweets, Furman explained the faults of the plan.
“Most importantly, everyone else will pay for this either in the form of higher inflation or in higher taxes or lower benefits in the future,” Furman tweeted.
Most importantly, everyone else will pay for this either in the form of higher inflation or in higher taxes or lower benefits in the future. I did a thread on this last night but given the new announcement you need to double everything in it. https://t.co/CJ7aPYyAw3
— Jason Furman (@jasonfurman) August 24, 2022
Furman also took issue with the legality of the president’s plan and pointed out that the use of executive power in forgiving debt may be skirting the law.
“Finally, it’s not obvious to me that this is reasonable for a President to do unilaterally. A number of lawyers (and political leaders) have argued inconsistent with the law. Even if technically legal I don’t like this amount of unilateral Presidential power,” he tweeted.
Finally, it’s not obvious to me that this is reasonable for a President to do unilaterally. A number of lawyers (and political leaders) have argued inconsistent with the law. Even if technically legal I don’t like this amount of unilateral Presidential power.
— Jason Furman (@jasonfurman) August 24, 2022
Furman is not alone in his doubts about the plan either.
Larry Summers, a former Clinton administration Treasury Secretary, has criticized Biden’s plan and suggested an alternative.
“I hope the Administration does not contribute to inflation macro economically by offering unreasonably generous student loan relief or micro economically by encouraging college tuition increases,” Summers tweeted.
I hope the Administration does not contribute to inflation macro economically by offering unreasonably generous student loan relief or micro economically by encouraging college tuition increases.
— Lawrence H. Summers (@LHSummers) August 22, 2022
“Student loan debt relief is spending that raises demand and increases inflation. It 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,” Summers added in the same Twitter thread.
Summers then suggested that the best way to address student debt would be to discharge it in bankruptcy.
“I think the best way to relieve student debt would be to allow it to be discharged in bankruptcy. I’d support this reform. It would also penalize other private creditors, unlike government debt relief that would in part subsidize them,” Summers tweeted.
I think the best way to relieve student debt would be to allow it to be discharged in bankruptcy. I’d support this reform.
It would also penalize other private creditors, unlike government debt relief that would in part subsidize them.
— Lawrence H. Summers (@LHSummers) August 23, 2022
Overall, there have been many economists that have pointed out serious flaws in Biden’s plan, as the Wall Street Journal reported.
Economists have noted that Biden’s debt cancellation plan may not actually be a benefit to the economy, particularly in its current inflationary state.
“Economists say that a tailored debt cancellation plan is unlikely to exacerbate short-term inflationary pressures, but could add to them in the long term, especially if universities continue to raise tuition because students might expect their loans to eventually be canceled,” the Journal reported.
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