Biden canceling student debt would make inflation worse, experts warn

President Biden cancels large swaths of student debt, experts warn.

Maya MacGuineas, President of the Committee for a Responsible Federal Budget (CRFB), warned that student “debt cancellation may be an extremely appealing political talking point, but it is not a good policy.”

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“It is costly, inflationary, poorly targeted, and fails to address the root problems of our higher education financing system,” MacGuineas said in a statement Thursday. “Full debt cancellation would be a massive hand-out to rich doctors and lawyers, who would be worried about our inflation crisis, and the cost would be nearly as high as the entire 2017 tax cuts.”

“Even partial debt cancellation would be costly, regressive, and inflationary,” she continued. “Forgiving $ 10,000 Per Person’s Debt As Costly as Universal Pre-K or a Full Extension of Expanded ACA Subsidies.”

“Either the President is serious about demanding deficits and getting under control, or he is not. The White House can’t have it both ways,” MacGuineas added. “We need to focus on a serious and effective agenda that prioritizes sound policies, not poorly targeted political giveaways.”

Noah Weinrich, a spokesperson for Heritage Action, a campaign-side sister organization to the Conservative think tank The Heritage Foundation, told Fox News Digital that canceling student debt “would raise inflation by up to 20 percent.”

“Make no mistake: this is a handout to wealthy, educated voters who will come to the expense of higher prices for food, gas, and energy. “He continued. “This is an absurd election-year gimmick that punishes most Americans.”

Manhattan Institute senior fellow Brian Riedl was less emphatic about the inflationary impact of canceling debt, though he made clear that he still views it as a bad economic policy.

“If the President tries to permanently cancel a large portion of student debt, that may add up to 0.3% this year’s inflation rate. Again, not helpful, but a major driver of inflation,” Riedl told Fox News Digital.

“The problems with student loan forgiveness are that the policy will transfer these liabilities over to the taxpayers (raising deficits and ultimate taxes), disproportionately benefit upper-income attorneys and doctors, and also send a signal to current and future college students that they should Future loan forgiveness programs, ”he added.

CRFB warned in February, when inflation was sitting 7.48 percent and countingthat “canceling all $ 1.6 trillion of student debt would increase the inflation rate” by between 0.1 percent and 0.5 percent after one year.

The organization put the cost of the federal government on canceling all student debt $ 1.6 trillion – Biden’s Signature $ 1.9 Trillion American Rescue Plan – Almost As Money

“The inflation effect of $ 1.6 trillion of student debt would be small relative to the enormous amount involved, since repayments are spread out over time and the benefits of debt cancellation accrue to higher earners, who tend to save more on their money,” CRFB’s analysis said.

“However, the increase is significant relative to the underlying inflation rate. That would represent a 4 to 20 percent increase relative to the Fed’s latest inflation forecast and a 5 to 25 percent increase above its target.”

The organization wrote that “even a modest increase in inflationary pressures could feed into current inflation dynamics, increasing the risk of a wage-price spiral and making it harder for the Federal Reserve to re-anchor inflation expectations around its current target.”

Wearing a Shopper as a Protective Mask and a Prevalence of Coronavirus Selects at the Reading Terminal Market in Philadelphia, Friday, April 22, 2022. (AP Photo / Matt Rourke)

Wearing a Shopper as a Protective Mask and a Prevalence of Coronavirus Selects at the Reading Terminal Market in Philadelphia, Friday, April 22, 2022. (AP Photo / Matt Rourke) (AP Photo / Matt Rourke / AP Newsroom)

They also estimated that “this increase would likely happen if the Biden administration continued to have another student loan payment moratorium for another year,” it said.

“Besides adding $ 1.6 trillion to national debt and disproportionately benefiting high-income individuals, we will find that student debt cancellation will increase prices more rapidly than they already have, exacerbating inflationary pressures,” CRBF warned.

On the other side of the cancelation conversation, CRBF predicted an increase in “household consumption by $ 70 to $ 95 billion once the impact of higher wealth is considered” if student debt is a cane but pointed out that the current US economy simply cannot meet market demand. spite of “elevated disposable income, strong balance sheets, lingering supply constraints, and other factors.”

“This disconnect helps explain why the inflation rate hit a 40-year high in the past year, and why higher demand could result in higher output rather than higher prices,” CRFB’s analysis said.

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Additionally, CRBF said their estimates did not take into account the widespread effect that student tuition prices should have on student debt.

“Prospective students may expect future rounds of debt cancellation, which could increase their willingness to take on more debt, thus reducing their sensitivity to the prices that schools charge and ultimately making it easier for schools to increase prices.” The organization writes.

Gas prices are at a gas station Friday, March 11, 2022, in Long Beach, Calif. (AP Photo / Ashley Landis) (AP Newsroom)

White House press secretary Jen Psaki was asked by Fox News’ Jacqui Heinrich about the concerns about inflation rising to potential debt, and responding that “the president is looking at the impact of student loans” and that “these are sure to work.” Families are getting relief. More important than tax cuts are millionaires, billionaires and corporations. “

“And the tax system is more fair where we invest and where we think we can make choices,” Psaki said. “But it’s not even a bill that’s moving through Congress, nor have we put together a proposal. So I don’t. Those numbers are based on any reality at this moment.”

The inflation warning comes as a widespread student loan cancellation comes as Americans are facing higher prices across the board and a dollar of expanded thinner.

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