Student loan forgiveness plan sparks opposition from some of Biden's own allies – Yahoo Finance


President Biden’s move to cancel student debt was long-expected — but the scope of the effort was not.
The expectation of $10,000 in student loan cancellation was widely reported in the lead-up to Wednesday’s news, but the final package included an additional $10,000 in forgiveness for Pell Grant recipients. The administration also laid out a cap on income-based repayments that could be felt for decades to come.
“It’s a game-changer,” President Biden said Wednesday in unveiling the plan.
The move predictably sparked opposition by Republicans, who have lined up en masse against the plan.
But some regular allies of the White House in both the political and economic spheres have also expressed concerns over the breadth of the relief. Jason Furman, who worked in President Obama’s White House, tweeted to note that Biden had gone beyond his 2020 campaign promise to a much bigger package. He noted that pouring “roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless.”
During an interview Wednesday on Yahoo Finance Live, White House Communications Director Kate Bedingfield pushed back by noting that other experts say the move “is not going to have an impact on inflation and it’s a fiscally responsible move.”
She added that “most importantly, it’s going to give middle class people and working families across the country breathing room that they need.”
One prominent defender cited by Bedingfield was Mark Zandi, the chief economist of Moody’s Analytics, who called the plan “largely a wash” from a growth and inflation perspective.
While the debt forgiveness portion of the package could put upwards pressure on demand, the plan to restart student loan payments in 2023 — also announced Wednesday — could serve as a counterbalance when it comes to inflation.
Experts have offered a range of projections of the likely impacts. Bloomberg Economics projects in net a 0.1-0.2 ppt inflation boost in 2023 while Goldman Sachs, in a new note on Thursday, noted that overall “debt forgiveness that lowers monthly payments is slightly inflationary in isolation, but the resumption of payments is likely to more than offset this.”
The critiques from Biden allies are also coming in the political sphere.
Politico laid out an array criticisms on Thursday, including remarks from a range of Democrats in high-profile Senate contests this November. Sens. Catherine Cortez Masto (D-NV) and Michael Bennet (D-CO), as well as Rep. Tim Ryan (D-OH), all notably distanced themselves from Biden’s move.
Ryan, who is locked in a tight race for an open U.S. Senate seat in Ohio, told the Columbus Dispatch that “waiving debt for those already on a trajectory to financial security sends the wrong message to the millions of Ohioans without a degree working just as hard to make ends meet.”
Of course, many Democrats backed the final package. Sen. Sherrod Brown (D-OH) — whom Ryan is hoping to join in the Senate — said the move will help Ohioans. And Sen. Mark Kelly (D-AZ), another Democrat locked in a tight contest, offered his support for the plan.
Other Democrats meanwhile are expected to push the Biden administration to do more.
The bottom line is this: Millions of working people will have a chance to build a more secure economic future because of President Biden’s decision to #CancelStudentDebt.
— Elizabeth Warren (@SenWarren) August 24, 2022
The move also marked a change for some voices who had just helped Biden support the Inflation Reduction Act (IRA) over Republican opposition.
“It appears that with the stroke of a pen today, the president is going to erase all of those gains” in the IRA when it comes to reducing the deficit, Maya MacGuineas, president of Committee for a Responsible Federal Budget, told Yahoo Finance this week.
The group estimates that the move will cost about half a trillion dollars.
Still, the White House disputes the notion that Wednesday’s move means Biden isn’t committed to deficit reduction, pointing out that the U.S. is projected to reduce its deficit by about $1.7 trillion this coming year. That is due to a range of factors, notably the rolling off of some pandemic aid.
Overall, Bedingfield promises that Biden and his aides will tout the student loan decision ahead of November’s election alongside a slew of White House victories in recent months.
“He has an incredible list of accomplishments that we’re now going to spend the next months going out, talking to people about the impact this is going to have on their lives,” she says.
Ben Werschkul is a Washington correspondent for Yahoo Finance.
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