White House officials had been weighing the move for months before officially landing on the $10,000 figure, according to a report from CNN, though some Democratic lawmakers have supported canceling up to $50,000 per borrower. Biden also decided to extend the pause on federal student loan repayment to January 2023, while borrowers with undergraduate loans can cap repayment at 5% of monthly income.
Nixing $10,000 of debt per borrower would cost $298 billion in 2022 and a total of $329 billion by 2031 if the policy is renewed each year, according to a nonpartisan analysis from the University of Pennsylvania’s Wharton School. Less than 32% of the funding would benefit Americans in the two lowest income quintiles, while 42% would benefit those earning more than $82,400 per year.
Indeed, a report from the Brookings Institution observed that one-third of student debt is owed by the wealthiest 20% of households, while only 8% is owned by the bottom 20% — likely because graduate degrees are often necessary for the most lucrative professions.
The policy may offer additional distortions as potential borrowers consider the possibility of future bailouts. “If student loan debt forgiveness is ongoing, students might eventually reorganize their financing toward additional borrowing,” the Wharton economists explained.
A new survey from CNBC shows that 59% of Americans are worried that student debt cancellation “will make inflation worse.” Nixing student debt is particularly popular among the young — while 30% of overall respondents said that no cancellations should occur, only 19% of adults between 18 and 34 years old maintain such a position.
The Biden administration’s move has also been criticized by Lawrence Summers — who served as Treasury Secretary under President Bill Clinton and National Economic Council Director under President Barack Obama — who contended on Monday that funds for loan cancellation could be better utilized elsewhere.
“The worst idea would be a continuation of the current moratorium that benefits among others highly paid surgeons, lawyers and investment bankers,” Summers said. “If relief is to be given it should not set any precedent, it should only be given for the first few thousand dollars of debt, and for those with genuinely middle class incomes.”
Summers, a frequent skeptic of the Biden economic agenda despite his own left-wing tendencies, commented on social media that the potential loan cancellation — if “unreasonably generous” — could contribute to higher levels of inflation and more colleges hiking their prices.
“Every dollar spent on student loan relief is a dollar that could have gone to support those who don’t get the opportunity to go to college,” Summers explained. “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.”