Biden announces partial forgiveness of college debt in a nod to young voters

US President Joe Biden returns to the White House after a few days of vacation, this Wednesday. SHAWN THEW (EFE)

The President of the United States, Joe Biden, announced this Wednesday that the Government will forgive $10,000 for each university loan, a debt that in many cases mortgages decades of working life for graduates, for all those with incomes below $125,000 a year. year.

Partial debt relief may increase youth support for Democrats in the midterm elections in November, but also increase inflation.

The moratorium on payment in force since the beginning of the pandemic is also extended until the end of the year, for all debtors.

That is why the measure, one of the star promises of Biden's electoral campaign, has taken longer than expected to materialize, after months of deliberations in the White House on fairness and fears that the plan could exacerbate inflation in a very sensitive moment, both politically and economically speaking.

Partially canceling the debt will free up hundreds of billions of dollars to increase consumption in times of economic slowdown, supporters of the measure argue.

The same argument is used, however, for critics and supporters of the initiative.

About 45 million Americans have paid for their university studies with loans, which represent a total of 1.6 trillion dollars, most of it in federal loans, after facing the payment of tuition that, both in private and public universities, is substantially higher than in the rest of the other rich countries.

Student debt far exceeds the volume of car loans, credit cards, or any other consumer debt except mortgages.

According to White House sources, the measure will benefit 43 million low- and middle-income Americans.

Democrats have pushed for a debt cut of $50,000 per loan, arguing that burden makes it impossible for younger Americans to save for a down payment on a home or other major purchases.

Republicans have opposed the initiative, believing it will disproportionately help the highest-income segment of the population.

Other beneficiaries of the presidential pardon are the recipients of the Pell Grant, a federal grant awarded to some six million students from low-income families, whose debt will be cut by $20,000 per head.

As the White House recalls this Wednesday in a statement, “since 1980, the total cost of public and private universities [for a four-year bachelor's degree] has almost tripled, even after taking inflation into account.

Federal support hasn't held up: Pell Grants, which once covered nearly 80% of a public college degree for students from working families, now only cover a third.

That has left many students from low- and middle-income families with no choice but to borrow if they want to get a degree.

According to an analysis by the Department of Education, the college student with loans now graduates with an average debt of nearly $25,000.”

The debate over debt forgiveness, and who should benefit from it, has turned out to be one of the most contentious issues of the Biden presidency and has exposed deep divisions in the White House on the matter.

Nor do the experts agree on the consequences.

Larry Summers, Treasury secretary under President Bill Clinton and a former economic adviser to Obama, has tweeted: “Student loan debt relief is spending that increases demand and increases inflation.”

Kent Smetters, a professor at the University of Pennsylvania, argues for his part that the effect of forgiveness on inflation "will be small, probably a tenth of 1%."