What Biden's student debt plan will do to the U.S. economy

Hey folks, good afternoon. I'm collin Binkley. I'm an Education reporter for the Associated Press in Washington. President biden is unveiling his long awaited student debt cancelation plan. It will cancel $10,000 in federal student debt per person and an additional $10,000 for students who received federal pell grants in college. Those are people who had lower incomes For for both of those groups. It includes income caps of $125,000 for an individual or $250,000 for *** household. And at the same time, President Biden is extending *** student loan repayment freeze that started early in the pandemic. And he's pushing that until the end of the year. All this means people can start finally crawl out from under that mountain of debt to get on top of the rent and the utilities with this news, *** lot of people have been wondering whether they qualify. We're here to answer those questions right now. It's important to note that this applies only to federal student loans, not private student loans. So these are loans that people have taken out directly from the federal government. Um, anyone can qualify as long as they're within the income cap. It does apply to current college students. Um, anyone who took out federal student loans before January one of 2022, um, can qualify, but it does not apply to people who already paid off their student loans before that or people who are about to take on new students that um, to go to college. The income cap. The administration says that's really intended to target the relief to people who need it most, but it's also intended to head off an argument from critics that this is sort of an unfair hand out to the wealthy. That it's an additional perk for college graduates who already earn higher incomes than other people and perhaps at the expense of taxpayers who did not go to college. This has the potential to reduce federal student debt for, for tens of millions of people. So we know that there are 43 million americans who have *** combined $1.6 trillion in student. That, according to the Education Department And the Biden administration says that this plan could eliminate entirely student debt for more than 20 million people. And that's because most borrowers actually have smaller amounts of student debt. You hear *** lot about stories about people who have $100,000 or more in student debt, but actually about *** third of borrowers have $10,000 or less and more than half have $20,000 or less. So for those borrowers, this could really take out all, or *** very large chunk of their federal student debt. Most people will need to apply to get their loans canceled through this plan. There's some small number of students borrowers who, the federal government already has their income data, so they can say yes, you meet that cap and we're gonna do this for you, but the vast majority would need to apply and there's no application process yet. The government says that that's going to be coming in, coming weeks, is what they say. This does not apply to people who have already paid off their their student loans. It applies only to people who currently have *** balance with the federal government. And people on all sides, both sides of the political aisle have criticized that element of student debt cancelation. They say it's unfair. Um people who have worked really hard to pay off their debt and and now they miss out on this benefit. Um the rebuttal from the biden administration is that it's it's great that they were able to do that. Um It's *** testament to their hard work, but that isn't *** reason to deprive other people of relief. Now, the major caveat to all of this is that the plan is almost certainly going to be challenged in court. Previous presidents have eliminated smaller amounts of debt for targeted groups of students, but it's never been done at this scale for this many millions of people. Um And so all along, there's been *** question about whether this is legal, whether the executive branch can do this without approval from con and that's something that republicans have said that they're going to challenge. They said they'll take it to court, it's just right now waiting to see who's going to file it and and what the argument is going to be, presumably, it has to be someone who can say that they were personally injured as *** result of this. So we need to find out whether that's going to be *** student loan servicer or maybe somebody who was left out of the plan.

President Joe Biden's student loan plan is a potential game changer for Americans drowning in debt. And yet the impact on the economy at large is likely to be so tiny that it will be hard to measure.Biden announced Wednesday that his administration will forgive $10,000 for borrowers who make less than $125,000 per year. Low-income borrowers who went to college on Pell Grants will receive up to $20,000 in student loan forgiveness.This debt relief will give tens of millions of borrowers some breathing room at a time when the cost of living has skyrocketed.Critically, the cancellation of student debt is being paired with a plan to lift the freeze on federal student debt payments, beginning in January 2023. That means many Americans who haven't had to pay down student loans since March 2020 will have to begin doing so, eating into their cash flows.Despite fears that Biden's student debt relief will fuel already-crippling inflation, economists say the combined impact will be minimal on the economy at large."The end of the moratorium will weigh on growth and inflation, while the debt forgiveness will support growth and inflation," Moody's Analytics chief economist Mark Zandi told CNN. "The net of these cross-currents is largely a wash."Video above: Students react to president's plan for student loan debtMoody's estimates that the combined impact will reduce real GDP in 2023 by 0.05 percentage points, drive down unemployment by 0.02 percentage points and cut inflation by 0.03 percentage points. In other words, a very tiny effect."We're not talking about raising or lowering inflation by a percentage point or even a half a percentage point. We're talking about a really small impact," Dean Baker, co-founder of the Center for Economic and Policy Research, told CNN in a phone interview. "But for individuals, this makes a big difference. It wipes out more than half the debt for more than half the borrowers. That's a big deal."Tens of millions of borrowers impactedThe typical undergraduate student with loans graduates with nearly $25,000 in debt, according to a Department of Education analysis cited by the White House.Up to 43 million borrowers will receive relief from Biden's student debt plan, including eliminating the full remaining balance for about 20 million borrowers, according to the White House.The inflationary impact would have been larger if Biden did not impose an income threshold on the debt relief or if he heeded calls from some progressives to wipe out $50,000 in student debt.Baker praised Biden's plan as a "good compromise" that avoided going to extremes."It's helping people out, but not giving away the store," he said.Some groups, including the NAACP, argue Biden's debt relief doesn't go far enough given the mountain of student debt in America."Canceling just $10,000 of debt is like pouring a bucket of ice water on a forest fire," NAACP leaders wrote in a CNN Business opinion piece.Video above: Biden forgives student loan debt, extends freezeA $300 billion price tagOf course, there is a cost to canceling student debt. And that cost will be picked up by taxpayers just when deficit reduction had suddenly become a bipartisan trend in Washington.A one-time cancellation of $10,000 for each borrower earning less than $125,000 will cost the government approximately $300 billion, according to an estimate this week from the Penn Wharton Budget Model. (The Penn Wharton model did not include the cost of wiping out up to $20,000 in student debt for Pell Grant recipients).Although $300 billion isn't massive for a $25 trillion economy, the cost of the student debt forgiveness would cancel out the projected federal budget deficit savings from the just-passed Inflation Reduction Act."All the deficit reduction will be wiped out," Marc Goldwein, senior vice president and senior policy director for the Committee for a Responsible Federal Budget, told CNN's Poppy Harlow.Note that the White House has hailed the deficit reduction aspect of the Inflation Reduction Act as an important inflation-fighting measure. And this marked a significant shift after years of both parties adding to America's mountain of debt to fight the Covid-19 pandemic.Even Jason Furman, head of the Council of Economic Advisers for former President Barack Obama, has doubts about Biden's plan."Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless," Furman tweeted. "Doing it while going well beyond one campaign promise ($10K of student loan relief) and breaking another (all proposals paid for) is even worse."Still, said Zandi of Moody's, this is a "big positive deal for probably close to 40 million, mostly lower and middle income, Americans, but small negative deal for all American taxpayers." 'Sends the wrong message'Beyond the economic impact, Biden's plan has sparked questions about fairness because it only helps people who were fortunate enough to go to college.Rep. Tim Ryan, the Ohio Senate Democratic nominee, said Biden's decision on student debt "sends the wrong message to the millions of Ohioans without a degree working just as hard to make ends meet.""Instead of forgiving student loans for six-figure earners, we should be working to level the playing field for all Americans," Ryan said.Citing a Department of Education analysis, the White House said nearly 90% of relief dollars will go to those earning less than $75,000.The student debt forgiveness comes too late for borrowers who worked for years to pay off their loans, only to now see others have their debt wiped away."I take that very seriously," Baker said of the fairness concerns. "We're relieving $10,000, not $50,000 or $100,000. That's why $10,000 is a good number."The real problem continuesNo matter the amount, wiping out student loan debt doesn't address the underlying problem: College tuition is way too expensive.Between 2000 and 2021, the cost of college tuition increased at more than twice the pace of overall inflation, according to Moody's Analytics. That's despite a slowdown in tuition hikes during COVID. The basket of goods measured in the Consumer Price Index cost 57% more in 2021 than it did in 2000, while the cost of college tuition soared by 167%, Moody's said.It's hard to see how eliminating a chunk of student debt solves that issue. And some, including former Treasury Secretary Larry Summers, have warned debt relief could also help raise tuitions."Costs are out of control. It's absurd people have to borrow large amounts and then struggle to pay it back," said Baker. "That problem is unsolved."

President Joe Biden's student loan plan is a potential game changer for Americans drowning in debt. And yet the impact on the economy at large is likely to be so tiny that it will be hard to measure.

Biden announced Wednesday that his administration will forgive $10,000 for borrowers who make less than $125,000 per year. Low-income borrowers who went to college on Pell Grants will receive up to $20,000 in student loan forgiveness.

This debt relief will give tens of millions of borrowers some breathing room at a time when the cost of living has skyrocketed.

Critically, the cancellation of student debt is being paired with a plan to lift the freeze on federal student debt payments, beginning in January 2023. That means many Americans who haven't had to pay down student loans since March 2020 will have to begin doing so, eating into their cash flows.

Despite fears that Biden's student debt relief will fuel already-crippling inflation, economists say the combined impact will be minimal on the economy at large.

"The end of the moratorium will weigh on growth and inflation, while the debt forgiveness will support growth and inflation," Moody's Analytics chief economist Mark Zandi told CNN. "The net of these cross-currents is largely a wash."

Video above: Students react to president's plan for student loan debt

Moody's estimates that the combined impact will reduce real GDP in 2023 by 0.05 percentage points, drive down unemployment by 0.02 percentage points and cut inflation by 0.03 percentage points. In other words, a very tiny effect.

"We're not talking about raising or lowering inflation by a percentage point or even a half a percentage point. We're talking about a really small impact," Dean Baker, co-founder of the Center for Economic and Policy Research, told CNN in a phone interview. "But for individuals, this makes a big difference. It wipes out more than half the debt for more than half the borrowers. That's a big deal."

Tens of millions of borrowers impacted

The typical undergraduate student with loans graduates with nearly $25,000 in debt, according to a Department of Education analysis cited by the White House.

Up to 43 million borrowers will receive relief from Biden's student debt plan, including eliminating the full remaining balance for about 20 million borrowers, according to the White House.

The inflationary impact would have been larger if Biden did not impose an income threshold on the debt relief or if he heeded calls from some progressives to wipe out $50,000 in student debt.

Baker praised Biden's plan as a "good compromise" that avoided going to extremes.

"It's helping people out, but not giving away the store," he said.

Some groups, including the NAACP, argue Biden's debt relief doesn't go far enough given the mountain of student debt in America.

"Canceling just $10,000 of debt is like pouring a bucket of ice water on a forest fire," NAACP leaders wrote in a CNN Business opinion piece.

Video above: Biden forgives student loan debt, extends freeze

A $300 billion price tag

Of course, there is a cost to canceling student debt. And that cost will be picked up by taxpayers just when deficit reduction had suddenly become a bipartisan trend in Washington.

A one-time cancellation of $10,000 for each borrower earning less than $125,000 will cost the government approximately $300 billion, according to an estimate this week from the Penn Wharton Budget Model. (The Penn Wharton model did not include the cost of wiping out up to $20,000 in student debt for Pell Grant recipients).

Although $300 billion isn't massive for a $25 trillion economy, the cost of the student debt forgiveness would cancel out the projected federal budget deficit savings from the just-passed Inflation Reduction Act.

"All the deficit reduction will be wiped out," Marc Goldwein, senior vice president and senior policy director for the Committee for a Responsible Federal Budget, told CNN's Poppy Harlow.

Note that the White House has hailed the deficit reduction aspect of the Inflation Reduction Act as an important inflation-fighting measure. And this marked a significant shift after years of both parties adding to America's mountain of debt to fight the Covid-19 pandemic.

Even Jason Furman, head of the Council of Economic Advisers for former President Barack Obama, has doubts about Biden's plan.

"Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless," . "Doing it while going well beyond one campaign promise ($10K of student loan relief) and breaking another (all proposals paid for) is even worse."

Still, said Zandi of Moody's, this is a "big positive deal for probably close to 40 million, mostly lower and middle income, Americans, but [a] small negative deal for all American taxpayers."

'Sends the wrong message'

Beyond the economic impact, Biden's plan has sparked questions about fairness because it only helps people who were fortunate enough to go to college.

Rep. Tim Ryan, the Ohio Senate Democratic nominee, said Biden's decision on student debt "sends the wrong message to the millions of Ohioans without a degree working just as hard to make ends meet."

"Instead of forgiving student loans for six-figure earners, we should be working to level the playing field for all Americans," Ryan said.

Citing a Department of Education analysis, the White House said nearly 90% of relief dollars will go to those earning less than $75,000.

The student debt forgiveness comes too late for borrowers who worked for years to pay off their loans, only to now see others have their debt wiped away.

"I take that very seriously," Baker said of the fairness concerns. "We're relieving $10,000, not $50,000 or $100,000. That's why $10,000 is a good number."

The real problem continues

No matter the amount, wiping out student loan debt doesn't address the underlying problem: College tuition is way too expensive.

Between 2000 and 2021, the cost of college tuition increased at more than twice the pace of overall inflation, according to Moody's Analytics. That's despite a slowdown in tuition hikes during COVID.

The basket of goods measured in the Consumer Price Index cost 57% more in 2021 than it did in 2000, while the cost of college tuition soared by 167%, Moody's said.

It's hard to see how eliminating a chunk of student debt solves that issue. And some, including former Treasury Secretary Larry Summers, have warned debt relief could also help raise tuitions.

"Costs are out of control. It's absurd people have to borrow large amounts and then struggle to pay it back," said Baker. "That problem is unsolved."

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