President Joe Biden announced another student loan forgiveness plan, keeping a pledge he made in the 2020 campaign for the White House. These new student stimulus checks will cancel $10,000 of student debt for low- to middle-income borrowers. Such a move from Biden could help Democrats in the November congressional elections, but some economists believe it may fuel inflation as well.
New Student Stimulus Checks: Who Will Get Them?
On Wednesday, Biden announced that his administration is cancelling $10,000 of student loan for borrowers with income less than $125,000 annually (less than $250,000 for married couples). Additionally, low-income borrowers who went to college on Pell Grants, will get up to $20,000 in student loan forgiveness.
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The actions are "for families that need them the most - working and middle class people hit especially hard during the pandemic," Biden said.
Along with cancelling student loans, Biden also extended a COVID-19 pandemic-linked pause on student loan repayment until the year's end. Also, Biden proposed a new income-driven repayment plan, where borrowers won’t have to pay more than 5% of their monthly income on undergraduate loans, down from the current threshold of 10%.
Speaking to reporters, a senior Biden administration official said the loan forgiveness would benefit up to 43 million students, completely canceling loans for about 20 million borrowers.
According to the Department of Education, about 8 million borrowers will get the benefit automatically as the department already has their income information. Others need to apply for loan forgiveness.
The application to apply for student loan forgiveness will be made available before the federal student loan repayment pause ends on December 31. In the meantime, borrowers can sign up for updates on the new student loan forgiveness plan at the Department of Education's subscriptions page.
Student Loan Forgiveness: How Would It Impact The Economy?
Biden’s new student stimulus checks will provide some relief to millions of borrowers at a time when the cost of living is at a record high. Moreover, it would free up billions of dollars in consumer spending that could help to boost the economy.
On the other hand, there are economists who argue that student loan forgiveness could add to inflation.
"Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless," said Jason Furman, a Harvard professor who headed the Council of Economic Advisers during the Obama administration, according to Reuters.
Moody's, however, estimates that the net impact of Biden’s new action would be marginal. Moody's estimates that real GDP in 2023 could drop by 0.05 percentage points, unemployment by 0.02 percentage points and inflation by 0.03 percentage points.
"The end of the moratorium will weigh on growth and inflation, while the debt forgiveness will support growth and inflation," Mark Zandi, Moody's Analytics chief economist, told CNN. "The net of these cross-currents is largely a wash."
