Biden admin messaging on how $300B student loan handout will impact inflation is misleading, experts say

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Biden’s student loan handout will ‘make college more expensive,’ increase demand for loans: Research associate

National Association of Scholars research associate Neetu Arnold champions for higher education reform and shares why Biden’s student loan handout is bad for college tuition costs.

Some experts are saying White House talking points stating President Biden's student loan plan would be inflation neutral are disingenuous after multiple administration officials cited economists who have made that argument. 

"What we're hearing is a lot of baseline games, which means people, in order to make the claim that this wouldn't be inflationary, are assuming that this wouldn't be inflationary at all," Committee for a Responsible Federal Budget President Maya MacGuineas told FOX Business. "Compared to something that wasn't the law, you can say it wasn't going to be inflationary. But compared to what was going to happen, it is inflationary.

"This is a case of people picking your own baseline, which isn't really a freedom in credible analysis."

Biden's plan, which he's implementing via executive action, would provide a handout of up to $10,000 for borrowers making less than $125,000, and double that for Pell Grant recipients. It will also continue the pause on student loan payments through the end of the year before resuming them. The current national debt, according to the Treasury Department, is over $30 trillion.

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White House Domestic Policy Adviser Susan Rice Wednesday said President Biden’s student loan bailout plan will not increase inflation because it also includes a resumption in student loan payments starting next year. (Alex Wong/Getty Images / Fox News)

Those payments were supposed to restart at the end of this month. But the White House is saying that element of the plan will be deflationary compared to if it didn't restart the payments at all.

"Collecting more payments by ending the moratorium will mean borrowers will pull back on spending in other areas. It will have a deflationary effect," White House press secretary Karine Jean-Pierre said Wednesday. Domestic Policy Adviser Susan Rice made similar comments. 

Jonathan Bydlak, policy director for governance at the libertarian R Street Institute, said Wednesday the White House's argument stretches the truth.

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"Pausing student loans for as long as we have, even when, you know, the U.S. economy has bounced back post the pandemic, has been an inflationary … influence," Bydlak said. "Even if what the White House is saying is true — and I think that's a bit of a stretch — it's still correct to say that this measure is holding in place … an existing upward pressure on prices."

"This is still the highest inflation level in 40 years," he added. "This policy is them basically saying, in so many words, ‘We don’t really care that much about out-of-control prices.'"

Bydlak also said that despite White House framing of the student loan forgiveness as something to help the underprivileged, the policy will disproportionately help more fortunate Americans, while increasing inflation for those less well off. 

"They're kind of being socked twice," he said.

President Biden Wednesday announced a move to forgive hundreds of billions in student loans via executive action, which opponents say is essentially a handout to the wealthy at the expense of the working class. (REUTERS/Leah Millis / Reuters)

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Reached for comment Thursday, the White House referred to an analysis by Goldman Sachs economists Joseph Briggs and Alec Phillips. It said resuming payments in 2023 will offset inflation from forgiving student debt. 

"The aggregate effects from such an income boost would be small, however, with the level of GDP increasing by about 0.1% in 2023 with smaller effects in subsequent years. We would expect the effects on inflation to be similarly small," they wrote. "However, the end of the payment pause and the resumption of monthly payments looks likely to more than fully offset the small boost to consumption from the debt relief program."

Brian Riedl, a Manhattan Institute senior fellow, said such an argument misunderstands the assumptions markets have been operating under.

"The baseline assumption for the Congressional Budget Office and most economic forecasters has been that student loan payments would fully resume this fall with no student loan bailout coming from Washington," he said. "So any deviation from that policy, such as the student loan bailout, will bring inflation relative to that baseline."

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Liberal activists pressured President Biden for more than a year to take executive action addressing student loan debt. The president partially ceded to those demands Monday.  (Jemal Countess/Getty Images for We, The 45 Million / Getty Images)

Criticism of the inflation effects of the loan handout also comes as questions are being raised about the overall cost of the policy. 

The Committee for a Responsible Federal Budget said in an analysis released Thursday morning that Biden's move would cost taxpayers between $440 billion and $600 billion, as opposed to the widely cited $300 billion number in a Penn Wharton Budget Model.

Riedl added that Biden's action, though it's framed as a one-time move, could result in further piling up of student debt and demand for more debt forgiveness in the future. 

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"Studies by the Federal Reserve and others show that 60% of all increases in student aid get captured by universities raising tuition in response," Riedl said. "Current estimates are that universities are gonna raise tuition, students are gonna borrow more and, within four years, total student debt will be just as high as it was before this bailout.

"If I'm an 18-year-old, I'm going to assume that there's going to be more student loan forgiveness in the future and borrow more as a result."

Fox News' Brooke Singman and Megan Henney contributed to this report. 

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