How Student Loan Forgiveness Will Affect Inflation, Economists

Depending on who you ask, the Biden administration wants to forgive up to $20,000 in federal student loans. Worsening inflation Or doesn’t make much of an impact.

Committee on Responsible Central Budgeting (CRFB) Insisting that loan relief will be provided”To wipe out inflationary benefits of Inflation Act,” which was passed into law earlier this month.

Estimates that administrative action is a cost “An astronomical $400-$600 billion“And previously estimated A $10,000 forgiveness will add 0.15% A commonly used measure of inflation is the personal consumption expenditure price index.

Economists at the left-leaning Roosevelt Institute clearly disagreed with the CFRB’s assessment. They argue that any inflationary effect would be “minor”. and offset by resuming student loan payments on Jan. 1, 2023.

Center for American Progress – This was before Called the White House To cancel at least $10,000 in student loans – says more Impact on inflation “Minor” will be.

Similarly, Mark Jandy, chief economist at Moody’s Analytics, says the effect on inflation is “mostly a wash.” He estimates that student loan forgiveness starts at $10,000 and increases inflation by 0.08%, as measured by the Consumer Price Index (CPI), another common measure of inflation.

Jandy also expects CPI inflation to moderate to 0.11% after the end of the payment freeze, as borrowers will have to start repaying their remaining loans.

Whatever the outcome, “there are so many moving pieces to the inflation picture right now that it’s going to be hard to measure accurately,” Sarah House, senior economist at Wells Fargo, tells CNBC Make It.

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How canceled student loans will change consumers’ spending habits is unknown, House says.

Even with up to $20,000 in student loan forgiveness, many borrowers still have to make monthly loan payments when the payment freeze ends. But for some, carrying less debt can encourage more spending wealth effect.

Either way, student loan cancellation “represents only the symptom rather than the cause of student debt,” he says. “It does nothing to encourage colleges to control costs and limit student debt out of college.”

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