TAMPA, Fla. — President Joe Biden's plan for student loan forgiveness is a cause for celebration for millions of Americans with mounting college debt, but critics question if it could fuel inflation or if Biden even has the authority to cancel debt like this.
"So many people owe more than $10,000 so we have been hearing from student loan borrowers that this is a drop in the bucket," said Natalia Abrams, president of the Student Debt Crisis Center. "What I would say to that is this is a historic first step."
What You Need To Know
- PREVIOUS STORY: President Biden to cancel $10k in student loans for millions of borrowers
- President Joe Biden on Wednesday said he would move to cancel $10,000 in student loans for borrowers in the United States making less than $125,000 per year, or $20,000 for Pell Grant recipients
- The president will also extend the student loan payment and interest pause through Dec. 31; Biden specified it would be the final time his administration extended the pause
A historic move that has critics fearing that debt forgiveness will free up hundreds of billions of dollars for spending.
Michael Snipes, a professor of economics for the University of South Florida, believes the impact to the economy as a whole won't be significant.
"When you decrease the amount that people owe by $10,000 what that does, is that's going to decrease the amount of money that's flowing into the financial sector," he said. "The argument goes that if those individuals are receiving less because the amount of debt that's being serviced is less, that's going to put a pinch on Wall Street and that's something that could and that's something that could shrink investment and something that could send the economy into a recession, maybe make inflation worse."
Snipes believes the impact on the economy as a whole will be tiny.
"This is something that probably would not affect inflation all that much. Because this is a servicing on debt. Wall Street is very good at taking care of itself," he said. "There's certain tools the financial world has at their disposal that can account for fluctuations or changes in the amount of principal they have."
The freeze on federal student debt payments will lift in January, meaning Americans who haven't had to pay loans since March 2020 will have to begin once again, which will affect their cash flows.