US government plans: Debt relief for many college graduates

US President Biden wants to partially waive student loans for millions of college graduates. For some this doesn’t go far enough, for others it’s unfair. And economists warn of rising inflation.

“During my election campaign, I campaigned for us to waive our student debt. I’m keeping that promise today,” President Joe Biden said at a press conference in the White House on Wednesday.

In concrete terms, this means that college graduates who earn less than $125,000 a year should have $10,000 waived from their student loans. Those who come from low-income families and have therefore received a special state loan for their studies should have to pay off $ 20,000 less.

45 million debtors

Those who study in the USA usually leave college or university with a large mountain of debt. At least $25,000 in debt is normal for bachelor’s graduates. Those who graduate from college often end up with tens of thousands of dollars more in debt.

“The burden is so great that even those who graduate don’t have access to the middle-class life that a college degree once made possible,” Biden said. Many people would not get a loan for a house because they still had to pay off the student loan.

45 million Americans have student debt with the state – totaling $1.6 trillion. According to the White House, almost all of them, namely 43 million, would benefit from the student loan waiver. In addition, former students will not have to continue paying off their loan until next year.

Some would have wished for more

Ex-President Trump suspended payments because of the corona pandemic. This deferral program was supposed to expire at the end of August. There are corresponding reactions on Twitter from those who will benefit from the government plans: “I’ve paid off eight years now and have about $8,000 in debt left. Which are now being wiped out. I’m damn excited about #studentloanforgiveness,” writes one.

For others, the $10,000 waiver doesn’t go far enough, they would have wished for more. As did some left-wing Democrats who had called for 50,000 loan forgiveness.

“Godsend for Republicans”

There is also sharp criticism from the Republicans. Senate Minority Leader Mitch McConnell tweeted: “Student loan socialism is a slap in the face to working Americans who have sacrificed themselves to pay off their debts or made other career choices to avoid debt .”

Entrepreneur Kevin O’Leary takes a similar view. This action by the government is not fair, he says on the CNBC television channel – and also perfect campaign material: “It’s a godsend for the Republicans. In all the close races in the midterm elections, this will be the topic with which they can campaign. ”

Economic experts warn of high costs

Economists from both political camps are also critical of the student loan reduction. The additional purchasing power that this creates could fuel inflation, so the tenor. Marc Goldwein from the non-partisan “Committee for a Responsible Federal Budget” believes that the program thwarts the government’s efforts to curb inflation with the recently passed Inflation Reduction Act.

“The Inflation Reduction Act will save maybe $300 billion in the first 10 years,” Goldwein told CNN. “If you cancel $10,000 in student debt now and also extend the moratorium by four months, we’re going to have about that in new costs. At the same time, we’re doing more to increase inflation than we’re curbing through the Inflation Reduction Act.”

Midterm elections are just around the corner

US President Biden has taken his time to fulfill his election promise. He is said to have hesitated for the very reasons his opponents are now accusing him of: Is that fair to those who have already paid off their student debt? And what effect does that have on inflation?

Ultimately, Biden acted for electoral reasons: to win over young and progressive voters to the Democrats. In order to be able to retain the majority in the Senate and House of Representatives in the midterm elections in November.