President Joe Biden’s student loan forgiveness program aims to provide thousands of dollars in federal student debt cancellation for millions of Americans. But where does the money come from?
Who is really paying for student loan forgiveness? Will it increase inflation? According to the White House, the money comes from the federal deficit and it will have no meaningful effect on inflation.
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“A deficit occurs when the government spends more money than it collects. The federal government has run deficits for the last 20 years,” according to USASpending.
According to Biden, this year they’re on track to cut the deficit by more than $1.7 trillion by the end of this fiscal year. Biden said this is the single-largest deficit reduction in a single year in the history of America.
Biden estimates the Inflation Reduction Act will cut the deficit by another $300 billion over the next decade, and over a trillion dollars if you add it out for the next two decades.
“There is plenty of deficit reduction to pay for the programs -- cumulative deficit reduction -- to pay for the programs many times over,” Biden said.
Biden also noted that when payments resume in January, about $50 billion a year will start returning to the Department of Treasury.
“Independent experts agree that these actions, taken together, will provide real benefits for families without meaningful effect on inflation,” Biden said.
According to a report from Forbes, Goldman economists said the student loan forgiveness plan won’t make inflation worse. Instead, it will add $400 billion to the deficit.
Goldman estimates the plan would only have a “small” overall impact on spending which could boost gross domestic product by about 0.1% in the next year and less in subsequent years.
“As a result, the forgiveness would have a “similarly small” effect on inflation -- one that would be ‘more than fully offset’ by a separate provision that would end the pause on payments, which has been in place since the start of the pandemic, in January 2023, the team led by chief economist Jan Hatzius said, noting that the overall effect would help lower inflation ‘slightly,’” the report reads.
Forbes said Bank of America came to a similar conclusion, estimating that the increase in the deficit over the next 10 years is similar to the decrease from the Inflation Reduction Act.
More: Complete coverage on student loan forgiveness
Statement from a press briefing with President Joe Biden (Aug. 25, 2022)
By resuming student loan payments at the same time as we provide targeted relief, we’re taking an economically responsible course.
As a consequence, about $50 billion a year will start coming back into the se- — the Treasury because of the resumption of debt.
Independent experts agree that these actions, taken together, will provide real benefits for families without meaningful effect on inflation.
Let’s be clear. I hear it all the time, “How do we pay for it?” We pay for it by what we’ve done.
Last year, we cut the deficit by more than $350 billion.
This year, we’re on track to cut it by more than $1.7 trillion by the end of this fiscal year. The single-largest deficit reduction in a single year in the history of America.
And the Inflation Reduction Act is going to cut it by another $300 billion over the next decade because Medicare will be paying less for prescription drugs, and over a trillion dollars if you add it out for the next two decades.
The point is this: There is plenty of deficit reduction to pay for the programs — cumulative deficit reduction — to pay for the programs many times over.
I will never apologize for helping Americans working — working Americans and middle class, especially not to the same folks who voted for a $2 trillion tax cut that mainly benefitted the wealthiest Americans and the biggest corporations, that slowed the economy, didn’t do a hell of a lot for economic growth, and wasn’t paid for and racked up this enormous deficit.
Just as we’ve never apologized when the federal government forgave almost every single cent of over $700 billion in loans to hundreds of thousands of small businesses across the — across America during the pandemic.
No one complained that those loans caused inflation. A lot of these folks and small businesses are working and middle-class families. They needed help. It was the right thing to do.
So, the outrage over helping working people with student — with student loans, I think, is just — simply wrong. Dead wrong.
Press briefing with White House Press Secretary Karine Jean-Pierre (Aug. 24, 2022)
Q Thanks, Karine. About the student loans — how can the country afford such a massive handout?
MS. JEAN-PIERRE: Yeah, well, you know, Ambassador Rice said that she’s happy to have that discussion; I’m happy to have this discussion as well.
Look, if you look at what this President has done, if you look at the end of this fis- — coming end of the fiscal year, $1.7 trillion that we have deduce- — brought down the deficit. That matters. That matters.
And if you look at the Inflation Reduction Act, it’s going to add another $300 billion going to bring down the deficit again.
Q And might spend $300 to $900 billion extra. So you can do that and not —
MS. JEAN-PIERRE: But here’s the thing —
Q — increase the deficit?
MS. JEAN-PIERRE: Here’s the thing: What we are trying to do here — we are doing this responsibly. You heard directly from the President — this is something that is going to be important for middle-class Americans. When you think about 90 percent of the folks who are — who are going to actually benefit from this are making $75,000 or less, and you think about what Republicans did just a couple of years ago, they — they signed off on a $2 trillion — $2 trillion tax cut for the wealthy and did not provide any way to pay for that.
Q Who’s paying for this?
MS. JEAN-PIERRE: And that — again, here’s what we have done. Here’s what —
Q But you’re talking a lot about how much it might cost, it might not cost. Who is paying for this?
MS. JEAN-PIERRE: What we are saying is the work that this administration has done, the work that the Democrats and Congress has done is actually there. And you see that the $1.7 trillion deficit — in deficit deduction that you see is going to benefit us in being able to do something for the middle class —
Q I understand. But you can’t just —
MS. JEAN-PIERRE: — to do something for the middle class.
Q But when you forgive —
MS. JEAN-PIERRE: This is about doing something for people who make less than $125,000. $1.7 trillion — that’s what we’ve been able to do.
Q But when you forgive debt, you’re not just disappearing debt. So who is paying for this?
MS. JEAN-PIERRE: But — and then I’ll give you the second part: We lifted the pause, right? We’re going to lift the pause at the end of this year, which is going to matter — right? — which is going to offset a lot of what — what we’re doing as well.
When you think about the — the $4 billion that are going — that’s going to go back into — as revenue back into this process of folks paying — paying — right? — their college tuition, that matters as well.
So we’re doing this in a smart way. We’re doing this in a way that’s going to be effective. We’re doing in this a way that keeps the President’s promise on giving people who need some breathing room — who need some breathing room.
Q But somebody is paying for it. Who?
MS. JEAN-PIERRE: I just — I just laid out — I just laid out for you —
Q Who?
MS. JEAN-PIERRE: No, Peter, I just laid out for you how we’re seeing this process and why this matters.
Q Is it wealthy Americans? Is it corporations? Who is paying?
MS. JEAN-PIERRE: Again, I just laid out —
Q Somebody has got to pay.
MS. JEAN-PIERRE: I just — I just laid out: Because of the work that we have done in the economy, because of the American Rescue Plan, because of the Inflation Reduction Act, and because all of this work that this President has done is actually — has brought down our deficit by $1.7 trillion, unlike what Republicans did when they added to our deficit $2 trillion and did not care at all or thought about how this was going to be paid for. They did not actually put in a process or thought — think about how we’re going to do this in a smart way. This is not how this administration is doing it.
Again, we are happy to continue to have this conversation. But I’m going to move around. Go ahead, April.