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Student debt cancellation 'is not good policy,' expert warns

The inflation crisis in the U.S. will only worsen if 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 good policy."

"It is costly, inflationary, poorly targeted, and fails to
address the root problems in 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, would worsen our inflation crisis, and would cost
almost as much as the entire 2017 tax cuts."

"Even partial debt cancellation would be costly, regressive, and
inflationary," she continued. "Forgiving $10,000 per person of
debt would cost as much as universal pre-K or a full extension
of the expanded ACA subsidies."

"Either the President is serious about reducing deficits and
getting inflation under control, or he is not. The White House
can�t have it both ways," MacGuineas added. "We need to be
focusing on a serious and effective agenda that prioritizes
sound policies, not poorly targeted political giveaways."

Jessica Anderson, the executive director of Heritage Action, the
political sister organization to conservative think tank the
Heritage Foundation, told Fox News Digital that canceling
student debt "would raise inflation by up to 20%."

"Make no mistake: this is a handout to wealthy, educated voters
that will come at the expense of higher prices for food, gas,
and energy for working American families who won�t see a dime of
relief � not to mention higher taxes," she 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 bad economic policy.

"If the president tries to permanently cancel a large portion of
student debt, that may add perhaps 0.3% to this year�s inflation
rate. Again, not helpful, but not a major driver of inflation,"
Riedl told Fox News Digital.

"The problems with student loan forgiveness are that the policy
would transfer these liabilities over to the taxpayers (raising
deficits and ultimately taxes), disproportionately benefit upper-
income attorneys and doctors, and also send a signal to current
and future college students that they should borrow even more on
the expectation of future loan forgiveness programs," he added.

CRFB warned in February, when inflation was sitting at 7.48% and
counting, that "canceling all $1.6 trillion of student debt
would increase the inflation rate" by between 0.1% and 0.5% a
year after the repayments are set to begin.

The organization put the cost of the federal government
canceling all student debt at $1.6 trillion � nearly as much
money as Biden�s signature $1.9 trillion American Rescue Plan �
"while improving household balance sheets by a similar amount"
and expecting "an $80 billion reduction in repayments in the
first year."

"The inflation effect of canceling $1.6 trillion in 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 mainly to higher earners, who tend to save
more of their money," CRFB's analysis said.

"However, the increase is significant relative to the underlying
inflation rate. It would represent a 4 to 20% increase relative
to the Fed�s latest inflation forecast and a 5 to 25% 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."

They also estimated that much of "this increase would also occur
if the Biden administration continued the student loan payment
moratorium for another year, since it would result in the same
increase in cash flow to individuals."

"Besides adding $1.6 trillion to the national debt and
disproportionately benefiting higher-income individuals, we find
student debt cancellation would cause prices to increase faster
than they already are, 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 effect of higher wealth is considered" if
student debt is canceled but pointed out that the current U.S.
economy simply cannot meet market demand in spite of "elevated
disposable income, strong balance sheets, lingering supply
constraints, and other factors."

"This disconnect helps to explain why the inflation rate hit a
40-year high in the past year, and why further increasing demand
could result in higher prices rather than higher output," CRFB's
analysis said.

Additionally, CRBF said their estimations didn�t take into
account the widespread effect that would hit tuition prices
should student debt be forgiven.

"Prospective students may expect future rounds of debt
cancellation, which could increase their willingness to take on
more debt, thus decreasing their sensitivity to the prices that
schools charge and ultimately making it easier for schools to
increase prices even faster than they already do," the
organization writes.

White House press secretary Jen Psaki was asked by Fox News'
Jacqui Heinrich about the concerns of inflation rising due to
the potential debt cancellation, responding that "the president
is looking at the impact of student loans" and that "to make
sure that these working families are getting relief is more
important than tax cuts to millionaires, billionaires and
corporations."

"And we can make choices about where we invest and where we
think we can make the tax system more fair," Psaki said. "But
there isn't even a bill that's moving through Congress, nor have
we put a proposal together. So I don't. Those numbers aren't
based on any reality at this moment."

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

Inflation has soared throughout Biden�s first term in office and
economists have pointed to Biden's signature multitrillion-
dollar spending package as one of the drivers of inflation.

https://www.foxbusiness.com/politics/biden-canceling-student- debt-make-inflation-worse

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