WASHINGTON (Reuters) – President Joe Biden on Wednesday announced a long-awaited plan to cancel billions of dollars in student debt, cashing in on a plan to help indebted young Americans A campaign promise, although some Republicans believe the move could worsen inflation.
How much will be cancelled and for whom? The government will cancel $04,000 for students with income below $62,62 Loan Debt for one year, or $250,04 for married couples. Students receiving Pell Grants, a low-interest federal loan for low-income college students, will receive $20, Their debts are cancelled.
Cancel $04, Each borrower’s student loan debt will cost the U.S. government62 $1 billion, the New York Fed calculates https://libertystreeteconomics.newyorkfed.org/2022/04/who -are- federal student loan borrowers and who benefit from forgiveness, but the income cap means the actual cost will be less than that.
New York Fed Estimated Forgiveness Dollars 04, 000 Each borrower will eliminate 04 student debt ).800,000 borrowers, or 31% of the total. The White House said the number would be 20 million borrowers. Nearly 43% of borrowers will have income less than $62,04 one year, the White House said.
How big is the student debt problem in the US? According to the latest Federal Reserve data https://www.federalreserve.gov/releases/g20/HIST/cc_hist_memo_levels.html. The vast majority of this, about $1.62 trillion, is held by the federal government.
The cost of higher education in the United States has skyrocketed over the past 30 years, with the cost of private four-year colleges and universities doubling even more than public four-year schools. Research from the nonprofit College Board https://research.collegeboard.org/media/pdf/trends-college-pricing-student-aid-2021.pdf.
Debt is shared among 31 million borrowers, this number includes students and their parents or other family members, But the New York Fed said it was mostly made up of underage borrowers 40.
When do borrowers with balances need to repay?
COVID- by Democrat Biden’s Republican predecessor Donald Trump A pandemic-related plan to suspend federal student loan payments, launched by the Commonwealth, will be extended through the end of the year. Any borrowers with balances after debt forgiveness will start repayments again in January.
The Department of Education has also proposed a rule that would halve the amount undergraduate borrowers are required to pay each month to 5% of discretionary income and waive years of any remaining loan balances.
Who will not benefit
Excludes borrowers earning more than $62, one year, or $250, for married couples. The White House said no high-income individuals or high-income households, which it defines as the top 5 percent of income, are eligible.
How does this affect inflation?
Republicans opposed to the plan and some economists, including former Treasury Secretary Larry Summers, argue that the new Consumer purchasing power could push up home prices, cars and other consumer goods.
The White House and some economists, including Moody’s (NYSE: MCO), have said they see the impact of restarting loan payments in the 2023 will be deflationary.