PRESIDENT BIDEN TO CANCEL $10,000 IN FEDERAL STUDENT LOAN DEBT AND $20,000 FOR PELL GRANT RECIPIENTS

August 24, 2022

Linh Truong

NEWS

Source: CNBC, CNN, whitehouse.gov

President Joe Biden announced that borrowers earning less than $125,000 will receive federal student loan debt relief of $10,000.

Biden will also cancel up to $20,000 for recipients of Pell Grant.

The Biden administration extended the student loan moratorium through December 31,2022.

ANALYSIS

How will loan forgiveness impact the high inflation in the U.S.?

Student loan forgiveness will lead to higher consumption since people get more free money to purchase things; however, the relief was still a modest amount in comparison with the college costs so they still have a long way to go after the relief of $10,000. Furthermore, even if the FAFSA borrowers are not relieved from a ten thousand dollars, they have already put aside from hundreds to a thousand of dollars each month for daily usages. The loan relief will not increase consumption and demand right away.

In the case of Pell Grant forgiveness of up to $20,000, recipients will have to work from January next year so that it won’t have considerable effect on the inflation and the government will receive income taxes from them to raise the national money supply.

How does loan cancellation impact the economy?

The influx of money is not really an instantaneous stream but the forgiveness was actually planned in 2020 but was paused because of the pandemic as the government had to change the target of the budgets to fund households and businesses which were affected deeply.

Borrowers will be able to pay back their debts faster since their loans were cut down. As borrowers can pay their debts early, they can save money for other future purposes which affects their lives greatly like using as investment for start-ups or savings for later plans like buying real estate, putting aside for children's education and retirement, etc. A large number of individuals in the economy will be able to see their gains sooner which is considered to be a positive sign.

The economy can have faith in the potential of student loan forgiveness since borrowers can use the funding money to invest in many prospective projects. For instance, students with the ambition to start-up businesses will be able to carry out their plans earlier or they can use the money to gain more career opportunities.

The loan relief will help to curtail debts for a considerable number of people so that they will have money to finance their daily needs without having to run into more debts. The economy can grow into a more positive side since fewer people face financial issues.