No, Student Debt Relief Won’t Stoke Inflation

Here’s why.

It's simple: without all that debt, you won't be able to afford things.Mother Jones illustration; Getty

Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.

On Wednesday, President Biden announced his much-anticipated plan to lighten the $1.6 trillion student debt burden that hangs over 45 million borrowers. Under Biden’s executive order, people making less than $125,000 ($250,000 for married couples) will see their debt load cut by $10,000. For borrowers who received Pell Grants—a program designed to make college accessible to people from low-income families—the relief rises to $20,000. According to critics ranging from Obama-era economic gurus to right-wing politicians, the move will add more fuel to a crisis already ravaging the economy: inflation, which already stands at a 32-year high. 

The argument goes like this. By slashing people’s college debt, Biden is putting more money in their pockets, which they’ll then spend, driving up prices. “It’s going to raise prices on everything from clothing to gasoline to furniture to housing because there’s more money being spent versus being saved in the form of paying down your debt,” fretted Marc Goldwein of the Committee for a Responsible Federal Budget, a non-partisan group promoting fiscal austerity, in an interview with Vox. Larry Summers, formerly a top economic adviser to presidents Bill Clinton and Barack Obama, echoed that claim.

Jason Furman, a Harvard economist who also served under Obama, came in even hotter.

Their complaints echoed those of GOP power players like Senate Minority Leader Mitch McConnell and House Minority Leader Kevin McCarthy.

They’re very likely all wrong. 

When you hear about $10,000 in debt relief, you might imagine millions of people suddenly having fat stacks of cash at their disposal, ready to go on a spending spree. Gasoline! Fire! Inflation! But that’s not how the Biden move works. The average amount of student debt stands at about $37,667 per borrower. According to the student debt calculator SmartAsset, the monthly payment on that amount would be about $393. Shaving $10,000 off leads to a payment of $289, giving a hypothetical borrower about $100 extra per month—a nice bonus, but hardly fuel for a spending rampage. 

And as the New York Times notes, debtors who opted for income-based repayment “generally won’t see their payments change—even if a portion of their debt is canceled. That’s because they make payments based on their discretionary income and household size.”

As a result, Columbia University economist and Nobel laureate Joseph Stiglitz argues in The Atlantic,  the “actual amount of annual debt payments that would be reduced now, during this present inflationary episode, will probably run to tens of billions of dollars, not hundreds of billions.” In the $23 trillion US economy, that’s just not enough new spending to move the needle on inflation. (Ask the pros: In 2016, economists at the St. Louis Fed found “almost no effect of government spending on inflation”—in fact, their data showed that a 10 percent jump in federal spending drove inflation slightly downward.) 

Stiglitz points to another factor that will eliminate the already minor effects of that extra cash jingling around people’s pockets: no one is currently paying back college debt. President Trump placed a moratorium on student loan payments during the pandemic—a measure Biden has upheld. On Wednesday, the same day it rolled out the debt-relief package, the administration also announced that it would lift Trump’s moratorium at the end of this year. When payments resume in 2023, even with a chunk of debt wiped out, debtors will be spending more to pay down student loans than they have been for the past two years, meaning zero inflationary pressure. Indeed, the “net effect will be to reduce inflation,” Stiglitz writes, although he acknowledges that the numbers are too small to have much impact either way. 

Despite the shrieks from prominent inflation hawks, Stiglitz’s view is hardly outside the mainstream. Indeed, multiple Wall Street economists agree. “The end of the payment pause and the resumption of monthly payments, Goldman Sachs’ investment team recently told investors,looks likely to more than fully offset the small boost to consumption from the debt relief program,” per Vox

Mark Zandi, chief economist at credit-rating agency Moody’s, put the case like this:

In the end, the idea that student debt relief will fuel runaway inflation, much like the notion that it’s a boon to wealthy elites, is a right-wing fantasy.  (My colleague Mike Mechanic debunked the latter notion here.) It’s fascinating to see Democratic Party-aligned bigfoots like Summers and Furman playing along.  

WE'LL BE BLUNT

It is astonishingly hard keeping a newsroom afloat these days, and we need to raise $253,000 in online donations quickly, by October 7.

The short of it: Last year, we had to cut $1 million from our budget so we could have any chance of breaking even by the time our fiscal year ended in June. And despite a huge rally from so many of you leading up to the deadline, we still came up a bit short on the whole. We can’t let that happen again. We have no wiggle room to begin with, and now we have a hole to dig out of.

Readers also told us to just give it to you straight when we need to ask for your support, and seeing how matter-of-factly explaining our inner workings, our challenges and finances, can bring more of you in has been a real silver lining. So our online membership lead, Brian, lays it all out for you in his personal, insider account (that literally puts his skin in the game!) of how urgent things are right now.

The upshot: Being able to rally $253,000 in donations over these next few weeks is vitally important simply because it is the number that keeps us right on track, helping make sure we don't end up with a bigger gap than can be filled again, helping us avoid any significant (and knowable) cash-flow crunches for now. We used to be more nonchalant about coming up short this time of year, thinking we can make it by the time June rolls around. Not anymore.

Because the in-depth journalism on underreported beats and unique perspectives on the daily news you turn to Mother Jones for is only possible because readers fund us. Corporations and powerful people with deep pockets will never sustain the type of journalism we exist to do. The only investors who won’t let independent, investigative journalism down are the people who actually care about its future—you.

And we need readers to show up for us big time—again.

Getting just 10 percent of the people who care enough about our work to be reading this blurb to part with a few bucks would be utterly transformative for us, and that's very much what we need to keep charging hard in this financially uncertain, high-stakes year.

If you can right now, please support the journalism you get from Mother Jones with a donation at whatever amount works for you. And please do it now, before you move on to whatever you're about to do next and think maybe you'll get to it later, because every gift matters and we really need to see a strong response if we're going to raise the $253,000 we need in less than three weeks.

payment methods

WE'LL BE BLUNT

It is astonishingly hard keeping a newsroom afloat these days, and we need to raise $253,000 in online donations quickly, by October 7.

The short of it: Last year, we had to cut $1 million from our budget so we could have any chance of breaking even by the time our fiscal year ended in June. And despite a huge rally from so many of you leading up to the deadline, we still came up a bit short on the whole. We can’t let that happen again. We have no wiggle room to begin with, and now we have a hole to dig out of.

Readers also told us to just give it to you straight when we need to ask for your support, and seeing how matter-of-factly explaining our inner workings, our challenges and finances, can bring more of you in has been a real silver lining. So our online membership lead, Brian, lays it all out for you in his personal, insider account (that literally puts his skin in the game!) of how urgent things are right now.

The upshot: Being able to rally $253,000 in donations over these next few weeks is vitally important simply because it is the number that keeps us right on track, helping make sure we don't end up with a bigger gap than can be filled again, helping us avoid any significant (and knowable) cash-flow crunches for now. We used to be more nonchalant about coming up short this time of year, thinking we can make it by the time June rolls around. Not anymore.

Because the in-depth journalism on underreported beats and unique perspectives on the daily news you turn to Mother Jones for is only possible because readers fund us. Corporations and powerful people with deep pockets will never sustain the type of journalism we exist to do. The only investors who won’t let independent, investigative journalism down are the people who actually care about its future—you.

And we need readers to show up for us big time—again.

Getting just 10 percent of the people who care enough about our work to be reading this blurb to part with a few bucks would be utterly transformative for us, and that's very much what we need to keep charging hard in this financially uncertain, high-stakes year.

If you can right now, please support the journalism you get from Mother Jones with a donation at whatever amount works for you. And please do it now, before you move on to whatever you're about to do next and think maybe you'll get to it later, because every gift matters and we really need to see a strong response if we're going to raise the $253,000 we need in less than three weeks.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate