The GOP sees student loan forgiveness as an economic drag. One Utah economist disagrees
More than 45 million Americans carry federal student loan debt, accounting for $1.6 trillion of the nation’s deficit. Up to 43 million borrowers, the Biden administration claims, will see a reduction in their debt following the White House’s student loan forgiveness announcement.
President Joe Biden’s plan will forgive up to $10,000 in student loan debt for borrowers who didn’t receive Pell Grants. Borrowers who did accept Pell Grants could see as much as $20,000. To qualify for forgiveness, the borrower can’t make more than $125,000 a year or $250,000 if married.
Ellen Butler, who took out roughly $20,000 in loans to pay for college, is one of those borrowers anticipating loan relief. Since she graduated, Butler has paid off around half of her loans while working as a public school teacher in Utah.
But with the president’s plan, she hopes to have a little bit more in the bank.
“It effectively removes all of that student loan debt, which is really great,” she said. “I'm able to save more money for other things.”
While Butler is optimistic about the loan forgiveness, Republican state Sen. Todd Weiler isn’t.
Weiler is no stranger to student loan debt. He said he took out loans and paid every cent back.
“It was painful, it was hard, and I didn't want to do it,” Weiler said. “But that's the commitment that I made. And that's a commitment that I lived up to.”
Anyone want to give me $10K? Not sure why anyone will ever be motivated to pay off their student loans in the future.— Todd Weiler (@gopTODD) August 23, 2022
He thinks debt elimination is politically motivated and sets a dangerous precedent. And while he isn’t totally anti-forgiveness, he expressed two major issues with the proposal.
First, Weiler believes the income cap is too high. He called it “disingenuous” and an “arbitrary line in the sand.” Second, it’s not “forgiveness” when the burden shifts to low-income and middle-class taxpayers to foot the bill.
“You're going to have a bunch of blue-collar workers who didn't go to college and didn't get the benefit of that higher wage paying back, through their taxes, the student loan debt of the people making $124,000 a year,” Weiler said.
The senator said “it would be hard to criticize” loan forgiveness if the income threshold aligned with the federal poverty line or maxed out somewhere around $50,000. But the presented plan, “just seems like the Democratic Party doubling down on a lack of personal responsibility.”
Weiler’s feelings toward Biden’s plan aren't isolated.
Several members of Utah’s congressional delegation spoke out against the announcement, including Republican Sens. Mike Lee and Mitt Romney. Both senators declined KUER’s request to interview and pointed to tweets as formal statements.
Sad to see what’s being done to bribe the voters. Biden's student loan forgiveness plan may win Democrats some votes, but it fuels inflation, foots taxpayers with other people’s financial obligations, is unfair to those who paid their own way & creates irresponsible expectations.— Senator Mitt Romney (@SenatorRomney) August 24, 2022
Their statements essentially mimic one another. Both believe loan forgiveness will increase inflation, create a greater economic divide and assume further debt relief in the future.
University of Utah Economics Assistant Professor Marshall Steinbaum agrees with one GOP talking point: that recurring student loan forgiveness could become the status quo. Not necessarily because of Biden’s actions, but rather because the federal government is dishing out more loans than it’s getting back.
“I do worry that we're basically going to have to do a version of this again over and over in the coming years because the fact is the government is originating $100 billion of new student loans every year, which it and everyone else knows aren't going to be repaid,” Steinbaum said.
The moratorium on student loan payments in response to the COVID-19 pandemic decreased the number of people not paying or defaulting on their debt. Approximately 16% of borrowers are currently in default.
Additionally, Steinbaum doesn’t buy that loan forgiveness will spike inflation. He said it seems like a talking point Republicans have been “instructed to use to attack the administration,” and “it's not really based on any kind of economic analysis.”
In fact, for the last two years, Steinbaum has studied the spending habits of borrowers during the federal student loan pause.
“We can tell that borrowers who didn't have to make payments on their student loans paid down other types of loans, [and] potentially increased homeownership rates,” Steinbaum said.
But as the administration lightens the student loan load, he also said that the payment pause (which will end on Dec. 31, 2022) could have negative impacts on the economy.
“I would say the trade-off between reducing loan balances but turning back on loan payments is probably going to be contractionary and further create risk of a recession.”