Fiscal watchdog argues against Biden student debt action
The Committee for a Responsible Federal Budget (CRFB) is pushing against further broad student debt relief as the Biden administration weighs taking action, arguing it could risk undermining a Democratic effort to reduce the deficit and fight inflation.
An analysis released by the fiscal watchdog on Tuesday looked at the fiscal costs that might take place if President Biden extended the pause on federal student loan repayments through the end of the year, as well as previous plans considered by the Biden administration to provide $10,000 in cancellation for some borrowers.
Both actions, the analysis found, would cost roughly $250 billion over the next decade.
“Combined, these policies would consume nearly ten years of deficit reduction from the Inflation Reduction Act,” the group also said, referring to the climate, tax and health care legislation that President Biden plans to sign into law on Tuesday.
Democrats are seeking to raise billions in revenue through tax provisions targeting wealthy tax cheats and big companies to reduce the deficit while also offsetting costs for investments in climate and health care.
Democrats have also touted the bill, which is projected to cut the country’s future deficits by north of $200 billion in the next ten years, as a means to fight inflation. However, some experts have doubted the bill would have a major impact on rising costs.
In its analysis on Tuesday, the CRFB argued student debt cancellation would “wipe out the disinflationary benefits” of the bill and “boost near-term inflation far more than” the economic package “will lower it.”
“We previously estimated that a one-year pause could add up to 20 basis points to the Personal Consumption Expenditure (PCE) inflation rate,” the budget watchdog also said. “Using a similar analytical method, $10,000 of debt cancellation could add 15 basis points up front and create additional inflationary pressure over time.”
The analysis adds to a heated national debate as to how Biden’s actions on student debt could affect inflation.
Republicans have strongly opposed an extension to the moratorium on student loan repayments, as well as Biden’s potential plans to provide $10,000 in debt cancellation for borrowers making under a certain income, calling the proposals “wildly inflationary.”
However, a number of experts have also downplayed the impact of such actions on inflation.
Laura Beamer, lead researcher in higher education finance for the left-leaning Jain Family Institute, told The Hill in a previous interview that most debt holders will still be carrying large loans even with a $10,000 reduction. As a result, the program is unlikely to provide a huge stimulus to consumer spending.
Any stimulus would depend on “people’s repayment patterns and how long the repayment term is,” which she added, for many, is “much longer than 10 years.”
The recent analysis comes as the White House faces pressure over how it will move forward on federal student debt. Without renewal, the moratorium on repayments will end on Aug. 31.
Biden officials have indicated that another decision on student loans could come later this month.