Last week the Supreme Court struck down the Biden administration’s student loan forgiveness plan, which would have done away with as much as $20,000 per borrower. And that was the second blow to borrowers in recent weeks. The first was when House Republicans used the deal to raise the nation’s debt ceiling to force borrowers to start paying back their loans in October, which is sooner than planned.
Some macroeconomists who have spoken out against forgiveness, fearing it would either spark inflation or represent fiscal malfeasance or both, should remember that the plan is not large enough to move the needle on macroeconomic conditions. In reality, the plan was primarily about the positive effects on individuals, not gross domestic product or inflation. The bipartisan Congressional Budget Office estimated that the loan forgiveness program would have cost $400 billion over the next 10 years, but that’s only around 1% of the $25 trillion economy annually.
Advocates have fiercely debated how to best structure student loan forgiveness, and President Joe Biden said he’s not giving up. “We’ll use every tool at our disposal to get you the student debt relief you need and reach your dreams,” he said Friday at the White House. A key sticking point was whether Biden’s plan was progressive or regressive, especially whether it would have improved racial wealth equity. With the Supreme Court ruling, such debates are largely moot now. Congress is the only path to forgiveness, and that’s unlikely to happen anytime soon.
