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Democratic President Joe Biden’s move to further halt student loan payments while the fate of his debt forgiveness plan is weighed by the Supreme Court has drawn criticism from some Republicans.
In November, Biden extended the pause on making student loan payments through 60 days after June 2023 or until litigation is resolved, whichever date comes first. Borrowers of federally held student loans have not been required to repay their debt since the COVID-19 pandemic began under former President Donald Trump.
This decision came as the Supreme Court in February is slated to hear arguments in two cases — one involving the state of Iowa — challenging Biden’s plan to forgive up to $20,000 for tens of millions of eligible borrowers.
U.S. Rep. Ashley Hinson, a Marion Republican, tweeted last month that “it costs over $4 billion per month to pause student loan payments, driving inflation higher.”
“While the Biden Admin lets wealthy Americans off the hook for their debt, working families continue to pay more for everything & suffer as inflation eats into their wages & budgets,” she wrote.
To justify the claim that the student loan payment pause costs over $4 billion per month, Hinson’s staff pointed to estimates from the Committee for a Responsible Federal Budget, a nonpartisan Washington, D.C.-based think tank.
The think tank reports that the pause costs over $5 billion per month and an extension to the end of August 2023 would cost $40 billion, pushing the total cost of the pause to $195 billion.
Plus, according to a fact sheet from the White House, the payment pause saves borrowers $5 billion a month, which Hinson’s communications director Sophie Seid said in an email is a cost shifted to taxpayers rather than a savings.
After the Biden administration’s previous move to extend the student loan repayment pause for four months from the end of August to the end of December, the nonpartisan Congressional Budget Office estimated the action would increase the outstanding student loans figure by $20 billion. That amounts to about $5 billion per month.
Hinson’s right on the cost of the payment pause as the federal government is left without money it expected to take in from loans it budgeted for borrowers to repay.
Next, we’ll look at whether the student loan payment pause fuels high inflation.
An August analysis by the Committee for a Responsible Federal Budget estimated a one-year student loan payment pause would add up to 15 to 20 basis points to the inflation rate, meaning an increase within 0.2 percentage points.
In November 2022, prices had increased by 7.1 percent compared to November 2021, so that increase would modestly cause inflation to rise up to 7.3 percent.
According to the think tank, the Federal Reserve could boost interest rates to offset the inflationary effects of the student loan forgiveness package, but that would trickle down to mortgages, car loans and other expenses.
“Depending on the timing of such actions, it might reduce the inflationary effect by about a quarter in the first year and erase it over time,” the report stated. “Higher interest rates, however, have significant economic consequences.”
But not all analysts agree with this assessment.
Even if the debt forgiveness plan took effect, some economists predict that while the program could ease borrowers’ financial strains, it wouldn’t be likely to dramatically affect spending. For instance, it’s not a direct payment like the stimulus checks sent to eligible Americans earlier in the pandemic.
“Overall, the extension of the moratorium would represent a fairly significant boost to short-term cash flow,” according to an August Bank of America report. “Most textbook economic theories of consumer behavior assume a degree of smoothing of consumer spending, so any short-term gain in saved repayments is unlikely to make a dramatic difference to household consumption decisions over the rest of this year, in our view.
“But with higher inflation having already stretched consumers’ spending power, it will likely provide some offset, particularly for lower-income households.”
Mark Zandi, the chief economist at Moody’s Analytics, tweeted in August that “with the President’s plan on student lending coming into relief, it is clearer that the impact on growth and inflation in 2023 will be marginal. Ending the moratorium will weigh on growth and inflation, while debt forgiveness will support them. The net is largely a wash.”
Ultimately, student loan payment pauses or debt forgiveness are only some of the factors that could drive inflation higher. Low supply and high demand, rising production costs and monetary policy all come into play to affect inflation, so it’s tricky to attribute record-high inflation to any one specific policy.
Hinson was accurate that it costs over $4 billion per month to pause student loan payments, but experts don’t necessarily agree that the payment pause or debt forgiveness will cause inflation to rise much.
In the short term, the payment pause or debt forgiveness may modestly boost inflation. In the long run, some experts suggest the resumption of payments will eventually cancel out those potential inflationary effects.
We give Hinson a B for her tweet.
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Members of the Fact Checker team are Elijah Decious, Erin Jordan and Marissa Payne. This Fact Checker was researched and written by Marissa Payne.