(Scott McClallen, The Center Square) – The reactions of Michiganders to Joe Biden’s effort to forgive some student loan debt range from predicting an economic boom to even higher inflation.
Michiganders earning less than $125,000 will have $10,000 in student loan debt canceled. Married couples earning less than $250,000 will have $20,000 of student-loan debt canceled. Pell Grant recipients will have $20,000 in student debt forgiven.
The pause on payments for all borrowers has been extended through the end of the year.
About 420,000 Michiganders owe less than $10,000 in federal student loans, while about 700,000 owe less than $20,000 in federal student loans.
The pause on student loan repayment, interest and collections for all borrowers has been extended through Dec. 31, 2022.
A new rule from the U.S. Department of Education will ensure that borrowers on income-based repayment plans will pay no more than 5% of their discretionary monthly income on student loans, down from 10%.
U.S. Rep. Bill Huizenga, R-MI, cited a University of Pennsylvania estimate that the action would cost taxpayers $300 billion. Huizenga said this spending will “make inflation even worse for families already struggling to make ends meet.”
“First of all, it is highly questionable that… Biden even has the Constitutional Authority to make this decision,” Huizenga said in a statement.
“Frankly, this is an insult to the students who worked their way through school as well as the parents or spouses who took a second job to make sure the bills were paid.”
Huizenga added that the action might aggravate college tuition costs.
The Committee for a Responsible Federal Budget estimates the action could cost as much as $500 billion to cancel about $550 billion of student loan debt. However, the group projects that the overall amount of outstanding federal student loan debt will return to $1.6 trillion within five years.
University of Michigan-Flint Economics Professor Chris Douglas said that “[S]tudent loan forgiveness is a regressive transfer from people without college degrees to those with them.”
Douglas said that people with college degrees, on average, earn a higher lifetime income compared to non-college graduates.
“The cost of the forgiveness is estimated to be $300 billion (or higher), or $2,500 per household,” Douglas told The Center Square in an email.
“Thus, this is equivalent to the IRS sending every household a bill for $2,500 and transferring it to those with student loan debt, which would be a total outrage if the IRS did this.”
Douglas said the cost of the forgiveness will be hidden in the national debt tacked onto future taxpayers or in higher inflation if the higher debt is monetized by the Federal Reserve.
Douglas noted that student loans didn’t necessarily just pay for an education. One survey of student loan borrowers found that more than 56% of respondents planned to use student loans to go on spring break in 2018.
“There is no justifiable reason that a student loan taken out to go on spring break should be forgiven,” Douglas said.
Gov. Gretchen Whitmer welcomed the news.
“The decision to cancel $10,000 in student loan debt and $20,000 for Pell Grant recipients will make a real difference for 1.4 million Michiganders that have student loans, putting money back in their pockets,” Whitmer said in a statement.
“Nearly 700,000 Michiganders will have their debt cut in half or eliminated entirely, lifting a huge burden off their backs. People can use these savings to buy a home, start a business, get married or start a family.”