According to a recent poll, some Americans are concerned about the impact widespread student loan forgiveness could have on inflation.
More than half of Americans (59%) said they were concerned that forgiving student loans would exacerbate inflation, according to the CNBC/Momentive poll.
And when viewed by political affiliation, the poll said Republican respondents were particularly concerned. More than three-quarters of Republicans (81%) said forgiving student loans will exacerbate inflation, nearly double the number of Democrats who said the same (41%).
The poll was conducted ahead of President Joe Biden’s announcement last week that his administration will cancel $20,000 in student loans per borrower if they attend college with Pell Grants and $10,000 in student loans per borrower for those who haven’t. The cancellation will apply to all federal student loan borrowers who earn less than $125,000 per year, or $250,000 per year for married couples. They also unveiled a proposal that would allow those with an undergraduate loan to limit their repayment to 5% of their monthly income.
sen. John Thune, RS.D., also expressed concern during an interview on Fox News’ “Your World with Neil Cavuto” last week, saying the plan could increase inflation and it’s unfair to taxpayers who don’t have college funding.
“[Student loan forgiveness] will increase the cost of college education because tuition costs will rise,” Thune said. inflation.”
The Biden administration has not given a definitive price tag on what the plan will cost. So far, estimates put the price north of $500 billion.
The Committee for a Responsible Federal Budget, a nonprofit public policy organization based in Washington, DC, estimated that the plan will cost $500 billion and “significantly increase inflation by 15 to 27 basis points over the next year.”
And the Penn Wharton Budget Model estimated that the cost of debt cancellation alone would be between $469 billion and $519 billion, and that foreclosure would cost another $16 billion. The proposed new revenue-based repayment option will add an estimated $70 billion to the plan’s price tag, raising the total package cost to $605 billion.
Only borrowers with federal student loans are eligible for forgiveness under the Biden administration’s plan. But if you have private student loans, consider refinancing to help you save on your monthly payments. You can visit Credible to find your personal rate without affecting your credit score.
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Experts divided on how consumers will use extra cash
The student loan forgiveness plan is expected to provide debt relief for some borrowers. But expert opinions differ on the impact of the extra money.
Mark Kantrowitz, president of PrivateStudentLoans.guru, explained that because all borrowers eligible for loan waivers have already benefited from the payment break and interest exemption, the newly announced waiver plan should not have an immediate impact on their discretionary income.
“While people like to focus on the total cost of loan forgiveness, the impact on the economy and inflation is based on the impact on loan payments, which is about $30 billion a year. That’s about 0.1% of GDP said Kantrowitz. “One also needs to consider the change from the previous month, not the change from the pre-pandemic environment, to evaluate the impact on inflation.”
Once student loan payments resume in January 2023, Kantrowitz said he expects the consumer price index (CPI) to fall by “about 0.2% of GDP” as student loan borrowers stop spending their money on goods. services and savings to repay their student. loans.
Another expert said he sees student debt cancellation as a huge boost to the US economy that could contribute significantly to higher inflation.
“For borrowers who resume payments next year, new provisions will dramatically reduce monthly payment requirements relative to income,” said Wes Moss, CFP, partner at Capital Investment Advisors. “In some cases, the minimum monthly payment could be reduced by more than 50%. This puts more money in consumers’ pockets to spend on discretionary goods and services and will act as a further economic stimulus that would put upward pressure on inflation. can exercise.”
If you have private student loans, they are not eligible for federal student debt forgiveness. However, you can reduce your monthly payment by refinancing to a lower interest rate. Go to Credible to find your personal interest rate without affecting your credit score.
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The impact on private student loans
While there is no debt relief for private student loans, the federal forgiveness plan could have a ripple effect on this sector.
One possible positive outcome is that with more cash in their pockets, borrowers are more likely to repay their private student loans, analysts told the American Banker.
According to the Education Data Initiative, by the beginning of 2020, 75.3% of private student loans had been repaid, while 20% had been deferred. These loans currently make up 8.4% of total U.S. student loans outstanding.
However, Josh Miller, the head of household purchase management and product auditing at KeyBank, said that in the long run, canceling and reducing student loan debt could make private loans less attractive to borrowers.
“Ultimately, this could lead to a situation where private credit options dry up and student education is fully funded by the government, ultimately placing the burden on the US taxpayer,” he said.
One way to lower your monthly payment on your private student loans is to refinance to a lower interest rate. To see if this is the right option for you, contact Credible to speak with a student loan expert and get all your questions answered.
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