Inflation Complicates Biden’s Deliberations on Student Loan Forgiveness

WASHINGTON — The soaring cost of food, gasoline and other staples is further complicating a fraught debate among President Biden and his closest advisers over whether to follow through on his campaign pledge to cancel thousands of dollars of student loan debt for tens of millions of people.

While Mr. Biden has signaled to Democratic lawmakers that he will probably move forward with some form of student loan relief, he is still pressing his team for details about the economic ramifications of wiping out $10,000 of debt for some — or all — of the nation’s 43 million federal student loan recipients.

According to sources, Biden asked repeatedly for data about whether this move would only benefit the well-off students at private universities. The country’s 8.6 percent inflation rate, a four-decade high, has added another layer of complexity to the decision: What would it mean for the economy if the government forgives some $321 billion in loans?

“You’re talking about millions, possibly billions of dollars that could be spent. You should do it with eyes wide open,”Cedric Richmond, who was a senior advisor to President Biden in the last month, said that he had decided to step down. “He wants to make sure that it’s based in equity and it doesn’t exacerbate disparities.”

Although Mr. Biden is yet to take a decision about student debt cancellation, his staff says he will by the end of August. There has been deep division within the White House over loan forgiveness’s political and economic consequences. Mr. Biden’s chief of staff, Ron Klain, has argued that it would galvanize a base of young voters increasingly frustrated with the president. Others have provided data that showed Americans who save money for tuition would be resentful.

Some economists have argued to President Biden that this move could actually reduce inflation. He should pair debt forgiveness with a resumption of student loan interest payments, which were halted at the beginning of the pandemic.

Mr. Biden’s deliberations are emblematic of his attempts to straddle deep ideological divides in the country, often within his party. Sources familiar with Biden’s thoughts say that the President is trying to reconcile his pledge to offer broad plans to tackle racial, economic and other disparities with fears that loan cancellation could increase inflation and be seen by some as a gift, undermining his status as an advocate of labor and the working-class.

Biden has been considering an arrangement for student debt relief. His economic advisors assured him that it would not increase inflation, and may even help to ease some price growth.

According to the plan Mr. Biden will cancel debt up to $10,000 for certain borrowers. This will give some borrowers more money to purchase goods or eat out. All moves to reduce debt will include income caps for those who are eligible.

However, he will end the student loan interest payment pause for all borrowers. This was originally imposed on March 2020, and extended seven times until August 31st. This would force many of these borrowers to reduce their spending on goods and services in order to pay back the loan.

Mr. Biden’s aides believe that pairing the two policies could pull a small amount of consumer buying power out of the economy. Some administrations believe that the combined policies will bring down inflation. Aides say they would cancel one another at the minimum.

“Given that fighting inflation is the president’s top domestic priority,”Jared Bernstein was a member of White House Council of Economic Advisers. “the key economic fact here is that if debt payment restart and debt relief were to occur at roughly the same time, the net inflationary effect should be neutral.”

Designing a plan to be inflation-neutral, at worst, under the administration’s accounting would require limiting the debt relief to far less than what more liberal Democrats have pushed Mr. Biden to grant.

Debt cancellation opponents would rather Mr. Biden start loan payments again and not forgive any outstanding debt. This would, they claim, have a greater chance to lower inflation. They claim that the Obama administration has made its inflation math look rosier, by considering the resumption interest payments as a policy to counteract some debt cancellation. The pause in the payment of certain loans was intended to last only a few days.

The administration’s math showing the paired policies to be neutral for inflation “is not the way I would prefer to think about it,”Marc Goldwein is the Senior Policy Director at the Committee for a Responsible Federal Budget. This nonpartisan Washington-based fiscal watchdog organization has been critical of cancelling proposals. “But it’s not totally bizarre for somebody to think about it that way.”

Reporters were told this week by Mr. Biden that he was nearing a decision regarding student debt. Unidentified White House officials spoke under duress to talk about internal discussions and said that they wanted to wait till August for an assessment of how bad inflation was by then as well as to see any changes in Congress.

Although the White House stated that it prefers Congress to pass student loan relief legislation, Senate Democrats do not have the votes. Executive action is the only viable option. Democrats want to see Mr. Biden fulfill his campaign promises.

A person familiar with the meeting said that Senators Elizabeth Warren, Chuck Schumer, New York, Raphael Warnock, Georgia and Chuck Schumer, both Democrats, showed data that would show that debt relief will benefit those borrowers who have not been able to prove the claim that relief was a free gift to the rich. Another official stated that Vice President Kamala Harris met with Mr. Biden in order to identify the beneficiaries.

Democrats often refer to a Temple University report showing that almost 40% of undergraduates who were enrolled during the 2011-12 academic school year had some degree but accumulated debt.

Republicans have attacked the White House for being financially irresponsible. Virginia Foxx, North Carolina’s top Republican member of the Education and Labor Committee said this month in a letter that she is “financially irresponsible”. “gravely concerned the department will further harm borrowers and taxpayers if it acts on student loan forgiveness, in part because of its inability to follow through on its grandiose proposals.”

The department’s loan servicers are dreading a replay of what happened last year, when they sent borrowers a series of notices saying payments would restart after Jan. 31 — only to have the resumption of payments repeatedly delayed.

“Official direction is to march ahead as if it’s happening, since that’s what’s going to occur unless we actively hear otherwise,”Scott Buchanan (executive director, Student Loan Servicing Alliance), a trade association, said that servicers will start reaching out to borrowers. “in the next couple of months.”

Should he seek the $10,000 forgiveness program, the president may not realize as much political advantage as his advisers believe.

Advocates for borrowers as well as labor organizations have cautioned that a restricted relief package with income caps may cause frustration in civil rights groups and young voters.

William E. Spriggs, a professor of economics at Howard University and chief economist for the A.F.L.-C.I.O., said that forgiving only $10,000 of debt would run counter to Mr. Biden’s commitment to racial equity. According to Spriggs, the cancellation of only $10,000 would not address the racial inequalities in the economy. He cited reports that Black borrowers have higher loan amounts than white borrowers.

“You are answering the problem of white people,” Mr. Spriggs said. “If you do $10,000, you essentially are telling white people: ‘You’re OK. You don’t have any debt.’ That’s not the case with Black people.”

He said that debt forgiveness is beneficial for families with low incomes because they don’t have the same access to higher-end universities and financial aid packages.

“This is the issue of everyday, regular Americans who went to their local, poorly supported state university who had to pay tuition,” Mr. Spriggs said. “And that means Black people.”

However, by delaying student loan relief’s decision for many months, some said that Mr. Biden had created a false perception that student loans relief was a concession to the rich and not an issue of race equity.

“By emphasizing these mythical Ivy Leaguers, he’s kind of put the wrong thought in people’s heads,”Astra Taylor is a founding member of Debt Collective. She has lobbyed the White House for student loan cancellation. “If people believe that, I kind of blame the president.”