How Biden is managing student loan payments amid inflation

President Biden, in the face of rapid inflation and looking for ways to help reduce rising costs for families, has extended the moratorium on student loan repayments until August. Despite being politically popular with Mr Biden’s party, the move has sparked criticism for adding a small measure of omps to the government’s efforts to control inflation.

America’s strong economic recovery from the deepest epidemic-era lockdowns has left consumers unable to afford spending and fueling rapid price increases. These rising costs are making voters unhappy, jeopardizing Democrats’ chances of retaining control of Congress in November.

The extension of the moratorium stands as an example of a more common problem facing the administration: policies that help families expand their budgets can calm voters, but they can also add fuel to the fire of inflation in an unnecessary moment. And perhaps more critically, analysts say, they risked sending a signal that the administration was not focusing on tackling price increases, despite the president’s promise to cut spending.

Inflation is at its fastest pace in 40 years and more than triples the Federal Reserve’s 2 percent target, as fast purchases clash with limited supply chains, labor shortages and limited supply of housing to raise prices.

The administration’s decision to extend the student loan moratorium by August 31 will put the money in the hands of millions of customers who can afford it, helping to maintain demand. While the impact on growth and inflation will probably be minimal – Goldman Sachs estimates that it will probably add about $ 5 billion a month to the economy – some researchers say it sends the wrong message and comes at a bad time. The economy is booming, employment is plentiful and conditions seem ideal for transforming borrowers into repayments.

“Four months is not going to get dramatic inflation on its own,” said Mark Goldwyn, a responsible federal budget committee member. (White House estimates a smaller number.) “But it’s four months, four months before that.”

Additional help for student loan borrowers could work in margins, cross-purpose with the Fed’s recent policy changes, which would take away household spending power and reduce demand.

In March, the Fed raised interest rates for the first time since 2018, and it is expected to rise further in May as it seeks to slow spending and give the supply chain some breathing space. It is trying to weaken the economy in order to keep inflation and the economy afloat without plunging into recession. If history is a guide, pulling it off will be a challenge.

A chorus of economists took to Twitter to express frustration with the decision after news broke of the administration’s plans on Tuesday.

“Wherever one stands on student loan relief, the approach is backward, creates uncertainty, is invisible and inappropriate at times when the economy is overheated.” By Lawrence H. Summers, A former Democratic Treasury secretary and Harvard economist who has been warning about the risks of inflation for months. Douglas Holtz-Eikin, former director of the congressional budget office who now chairs the American Action Forum, describes himself as a center-right policy institute. Thus it is summarized: “AAAAAAARRRRRRRRRGGGGGGGHHHHHHHH !!!!!!!!!!!

Still Even the proponents of strong action He argued that the suspension was not enough – and that bad student loans should be canceled altogether. New York Senator Chuck Schumer, Democratic leader and Elizabeth Warren of Massachusetts are among lawmakers who have repeatedly pressed Mr. Biden to wipe out up to $ 50,000 per borrower in an executive order.

This apparent division, as the November 8 election draws to a close, indicates that the administration is moving in the right direction, balancing democratic control in the House and Senate.

Sarah A., a political scientist at George Washington University. “They’re buying political time,” Binder said in an email. “Kicking Can in the street – with another extension, of course, before this fall election – seems to be the best move politically.”

In the case of inflation, the administration is taking a calculated risk: the suspension of student loans may not be a major factor that exacerbates inflation this year, even if they add a little extra juice to demand in the margins. At the same time, continuing the policy avoids a political confrontation that could tarnish the reputation of the administration and the Democratic Party ahead of the November vote.

White House officials stressed Wednesday that the small amount of money that defaulters are adding to the economy each month will have little effect on inflation. However, they can help vulnerable families – including those who have not completed their degree and those whose job prospects are worse.

Jared Bernstein, a member of the White House, said, “The effect of increasing the break on inflation is negligible – you have to go to the third decimal place to find it, and if you do, it will be .001.” Economic Advisory Council.

A recent study by the Federal Reserve Bank of New York suggested that some borrowers may struggle under the weight of payments and post a “significant increase” in crime if payments resume. Mr. Biden cited those Fed data during his announcement. The Department of Education has suggested that borrowers be given a “new start” that will automatically eliminate offenders and defaulters and allow them to start repaying, if it starts again, in a better position.

“We are still recovering from the epidemic and the unprecedented economic turmoil that has resulted,” Mr Biden said.

The move could also dampen the pain of an inflationary moment for some families. Voters are deeply dissatisfied because inflation has eaten away at paychecks and cut off wages for many workers. A recent Gallup poll shows that concerns about inflation have reached their highest level since the 1980s, and although they are lower among Democrats than Republicans, they are growing across the biased line.

Some proponents of increasing the moratorium have cited inflation as part of their argument.

Democrat Rep. Pramila Jaipal in Washington said, “This is an important step in ensuring that the cost of working families does not increase as we work to combat inflation and corporate greed.” Wrote on Twitter.

But the fact that the move could add inflation to margins and come at a time when the economy is moving strongly has prompted critics to argue that it is difficult to make an economic lawsuit for extensions.

“From an economic point of view, this is a very bad decision,” said Ben Ritz, director of the Center for Funding America’s Future at the Progressive Policy Institute. “It’s very expensive, it’s inflationary, it’s backward. They have been doing this for months at a time, so it is creating uncertainty for the borrowers. “

Unemployment among college graduates is the biggest beneficiary of student loan repayments, currently at just 2 percent. For those without a degree – just graduating from high school – the unemployment rate is 5.2 percent, roughly equal to its pre-epidemic level.

By “regressive”, Mr. Ritz means that deferring student loans helps relatively high-income families. Accounting for the cost of an education and adjusting for existing student relief programs, a Brookings Institution analysis found that about one-third of all student loans go to wealthy 20 percent households and only 8 percent to the bottom 20 percent.

The program was intended to provide relief during the epidemic, but has now been extended seven times. Now it will put borrowers in a better financial position for housing, ballet lessons and affordability of new couches – no matter how much they want to spend their money instead of paying – just as the central bank seeks to drive interest rates out of the economy.

“It simply makes the Fed work harder,” Mr Ritz said.

Stacey Cowley Contributing Reporting.

Leave a Comment

Your email address will not be published.