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The economic arguments for and against Biden's student debt relief plans


President Biden's plan to forgive hundreds of billions of dollars in student debt is drawing cheers - also plenty of boos. Borrowers are happy with the prospect of having up to $20,000 in college loans forgiven. Critics are questioning the fairness and the economic fallout of the president's plan. We are going to talk through some of the arguments for and against the plan with NPR's Scott Horsley. Hey, Scott.

SCOTT HORSLEY, BYLINE: Good to be with you, Mary Louise.

KELLY: People are worked up about this. Lay out the gist for me of the arguments, pro and con.

HORSLEY: Well, obviously, if - student debt is a big burden for a lot of people. And under this plan, 43 million people stand to have their loan payments reduced. Twenty million of those would have their debts forgiven altogether. So if your payments are cut or eliminated, that means you have more money to spend elsewhere. Maybe you can buy that car you've been looking at, make a down payment on a house or even put more money aside for your own kids' college education.

KELLY: Right.

HORSLEY: So this does have the potential to raise the living standards for tens of millions of people. On the other hand, critics say that additional spending could just pour more gasoline on the inflationary fires in an economy where businesses are already struggling to keep up with consumer demand. Now, we should note this is different than, say, those $1,200 relief checks that the government sent out to just about everyone last year. It's not as if people with student loans would suddenly have $20,000 transferred to their bank account. Instead, they would be relieved of making loan payments over the course of many years. And because that relief would be spread out, Ali Bustamante, who's with the left-leaning Roosevelt Institute, says this really wouldn't move the needle on inflation all that much.

ALI BUSTAMANTE: It's really a drop in the bucket when it comes to just the massive level of consumer spending that we have in our very service- and consumer-driven economy.

HORSLEY: The White House also notes that the remaining student loan payments, which have been on hold throughout the pandemic, are about to restart next year. And so that's going to offset some of the additional spending power and potential inflation pressures that would come with this loan forgiveness.

KELLY: Although, we should note, inflation is not the only issue that critics of this plan are raising. What else?

HORSLEY: No. Another big complaint has to do with fairness. You are essentially transferring this debt from individuals and families to the federal government and ultimately to taxpayers. And that includes people who, you know, maybe scrimped and saved to pay for their own college or the majority of Americans who don't go to college. They might not mind subsidizing a newly minted social worker who earns, say, $25,000 a year. But they might bristle at underwriting debt relief for a business school graduate who's about to go off to Wall Street and earn six figures.

The White House says 90% of this debt relief would go to people making under $75,000 a year. But the plan does allow for couples earning up to a quarter million dollars to get some debt relief. And that might rub some people the wrong way. Lower-income borrowers who qualified for Pell Grants in college are eligible for twice as much debt forgiveness as other borrowers. But Marc Goldwein, who is with the Committee for a Responsible Federal Budget, still thinks this plan does a lot to help people who might not really need the assistance.

MARC GOLDWEIN: I still think a lot of this benefit is going to go to doctors, lawyers, MBAs, other graduates that have very high earnings potential and may even have very high earnings this year already.

HORSLEY: So that fairness issue is another big complaint.

KELLY: What about what all this might mean for the basic question of how much it costs to go to college in this country?

HORSLEY: Yeah, this is maybe the biggest beef that economists have with this plan. For years, the cost of college education has soared much faster than overall inflation. And this debt forgiveness doesn't really do anything to fix that problem. In fact, it could make it even worse. Goldwein worries about the message that debt relief would send to, say, a high school student today who's thinking about where to go to college and how to pay for it.

GOLDWEIN: People are going to assume there's a likelihood that debt is canceled again and again. And if you assume there's a likelihood it's canceled, you're going to be more likely to take out more debt upfront. That's going to give colleges more pricing power to raise tuition without pressure and to offer more low-value degrees.

HORSLEY: So Goldwein calls this just a Band-Aid on a bigger problem. The old rule in economics, Mary Louise, is when the government subsidizes something, you tend to get more of it. In this case, that could include high tuition and college debt.

KELLY: We shall see if the rule holds in this case. NPR's Scott Horsley. Thank you.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.