Reasons why President Biden may not cancel student debt in August

Millions of student loan borrowers will begin paying off their debt next month unless, President Biden forgives debt or extends moratorium for seventh time.

When the Covid-19 pandemic first took hold in the US and a massive wave of unemployment swept the country, President Donald Trump introduced a moratorium on student loans. Many economists believed that if income paid back the debts, which are essentially owned by the government, the economy could go into recession.

With inflation pushing up consumer prices, some of these economists still see the threat of student loan payments consumer spending. With many paying more for housing, food and utilities, Daniel J. Milan, a financial advisor for Cornerstone Financial Services, told Forbes that a “borrower may feel more stress when it comes to maintaining their student loans.

Candidate v. President Biden on Student Loan Issue

Presidnet Biden campaigned for a proposal to solve the student debt crisis, including a provision to grant forgiveness up to $10,000 in student loans. To the dismay of many leaders, activists and borrowers, no such announcement has come.

Since taking office, President Biden’s administration has has the cancellation obligation reducedarguing that if Congress passed a loan forgiveness bill, he likes to draw it.

This is far from the platform on which President Biden was elected, including Elizabeth Warren’s proposal to “immediately cancel a minimum of $10,000 in student debt per person.”

Can Paying Off Student Loans Raise Inflation?

As November approaches, many Republican leaders have criticized the idea of ​​debt forgiveness, saying it is a… giveaway to the rich and will contribute to inflation.

The proposal to make debt forgiveness universal, meaning it will be applied regardless of income, is done in part to increase the favor of the program. Republicans, however, seemed uninterested in any more”progressive” subscription that would cancel up to $25,000 for those making less than $75,000 a yearthat benefit the “bottom 40 percent of the income distribution” [who would] rreceived almost twice as much money.” This policy proposal has been touted by JP Morgan Chase, the only problem is that it ignores it income group that has more than $100,000 in debtcompared to those at the top of the income distribution who have significantly less.

The personal and economic costs of ending student debt moratorium

Average prices remained stable in July, halting a historic price increase led to an increase of 8.5 percent from 12 months ago.

One of the reasons that President Biden may choose not extending the moratorium or continuing with termination would reduce household purchasing powerreduce demand, which some economists think this would lead to a price drop. This is the same monetary theory that led the US Federal Reserve to raise interest rates by 1.5 percent in just two short months earlier this summer. With less money flowing through the economy on the demand side, prices have to fall to meet supply.

Supply chains that have struggled to rebuild after the destructive effects of the Covid-19 pandemic, coupled with high energy prices, have contributed to historic inflation, but there are other factors to consider.

Forcing borrowers to start paying back their debt would be a particularly brutal way to drive prices down, especially given how corporate greed has contributed to the current financial and student loan crises.

Take, for example, the monopolized and highly consolidated corporate consolidation. Tyson Foodswho delivers about one-fifth of all beef, chicken and pork in the US has reported price increases well above the industry average between 2021 and 2022. The company has made billions in profits, and their quarterly reports show that they taking income at a level well above their labor, transpiration, and production costs.

Constellation Brands CFO Garth Hankinson said during a meeting with investors that the company planned to “take as many prices as we think the consumer can absorb.” In other words, their price increases were not based solely on their cost, but rather the highest price for their goods that the average consumer was willing to pay. Further ethical lines come into play when we look at a company like Constellation Brands, which sells a highly addictive product: alcohol.

So in a time of income inequality like in the 1920s, President Biden can use the economic pain of student loan borrowers to offset inflation.

Last month, compared to July 2021, average prices were up 9.1 percent and wages were up 5.2 percent — meaning workers have seen an average pay cut of 3.9 percent.

Inflation has also had a significant impact on personal savings.

In Dec 2021, personal savings amounted to 8.7 percent of total income or about $1.5 trillion. Savings rates skyrocketed throughout 2021 as the third incentive check and the increased child discount were distributed to millions of households. Each time these payments were made, households chose to save some of them. After payments ended in early 2022, the savings rate plummeted from 5.8 percent in January to 5.1 percent in June. Total household savings also fell to $944.5 billion in June, the lowest level recorded in January 2021. Inflation has eaten away at personal savings, pushing the rate to one not seen since the height of the 2008 financial crisis.

With an average student loan payment per month of $393, and with 44 million borrowers in debt, the savings could be reduced by $18 billion a month if the mortarium is lifted. This would have regressive consequences for lower-income people who face even greater challenges in saving. Advocates for student loan cancellations don’t think that restarting payments fosters an environment conducive to financial resilience through as turbulent a time as possible in the market.


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