Fact check: Student loan forgiveness won’t make inflation ‘even worse,’ experts say
Since President Biden announced his plan on Wednesday to eliminate student debt for millions of Americans, including many in the Charlotte region, Republican leaders and skeptics alike have claimed that the cancellation of student debt will only make the economy’s already bolstered inflation much worse.
Public figures like Rick Scott, a Republican senator from Florida, and GOP Chairwoman Ronna McDaniel have taken to Twitter to express their concerns about Biden’s plan to cancel student debt for millions.
“Today, (Joe Biden) forced every American who didn’t attend college or has already paid off their loans to now pay off others’ debts. Democrats’ canceling student loans isn’t a ‘relief’ for Americans. It’s an added burden that will only further increase inflation,” Scott wrote in a tweet that was sent out on Wednesday.
“59% of Americans say that if Biden bails out student loan debt, inflation will get even WORSE,” McDaniel tweeted on Tuesday, a day before Biden’s announcement.
The percentage cited in McDaniel’s tweet comes from a CNBC survey released on Monday. The results showed that more than half of those surveyed believed Biden’s debt forgiveness plan could have “unintended consequences,” including the worsening of inflation in the United States.
Debt forgiveness will have minimal impact on inflation
So, how true is it? According to Duke University professor and economist, Connel Fullenkamp, the claims might be more exaggerated than what the economy could actually reflect.
“My thought is that the inflation effect of the student loan forgiveness won’t be very big,” Fullenkamp told The Charlotte Observer. “Although the amount of debt to be forgiven is large, there’s a difference between having a debt forgiven and getting a cash handout.”
According to Fullenkamp, the debt relief is unlikely to cause a drastic shift in spending patterns.
Spending patterns from forgiven borrowers won’t change
“Many people won’t change their spending at all, but will simply be relieved that one bill they worried about how to pay will be gone,” Fullenkamp said. “Others will spend more, but not a lot more.”
People who have their student loan debt erased will probably feel richer and will be more inclined to spend more, but the effect will be relatively small, Fullenkamp predicts.
“For example, people who see the value of their homes increase by $100 might increase their spending by $4 per year,” Fullenkamp said. “I think the impact of debt forgiveness will be even smaller than that.”
And fellow economy experts agree with him.
Claims of worsened inflation in the future contradict expert opinion
Canceling student debt could give a bump to inflation, but only in a very minor way, higher-education professionals and economists said in a May article featured in Money Magazine.
Unlike stimulus checks paid in large lump-sum amounts, debt relief is spread over a large amount of time, experts said.
“You can’t take it to the bank and spend it,” Adam Looney, an economist and finance professor at the University of Utah, told Money Magazine.
“On top of everything else, it will take a while for the debt forgiveness to be given out to everyone who qualifies,” Fullenkamp told the Observer. “This will further dilute its effect on the overall economy.”
This story was originally published August 25, 2022 at 2:07 PM.
