Former Treasury Secretary and National Economic Council director Lawrence Summers warned on Monday that a plan from President Joe Biden to cancel thousands of dollars in student loans per borrower could worsen runaway college tuition costs.
White House officials are leaning toward a student debt cancellation of $10,000 for each borrower earning under $125,000, according to a report from CNN. The decision looms as the White House also deliberates whether to extend the present moratorium on federal student loan payments, which is currently slated to expire on August 31.
Summers, a frequent skeptic of the Biden economic agenda despite his own left-wing leanings, commented on social media that the potential loan cancellation, if “unreasonably generous,” could contribute to higher levels of inflation and more colleges hiking their prices.
“Every dollar spent on student loan relief is a dollar that could have gone to support those who don’t get the opportunity to go to college,” Summers explained. “Student loan debt relief is spending that raises demand and increases inflation. It consumes resources that could be better used helping those who did not, for whatever reason, have the chance to attend college. It will also tend to be inflationary by raising tuitions.”
Average private university tuition is currently $43,775, and average in-state public university tuition is $11,631, according to data from U.S. News and World Report.
Data also imply that student loan cancellation fails to aid poorer Americans. A report from the Brookings Institution shows that one-third of student debt is owed by the wealthiest 20% of households, while only 8% is owned by the bottom 20% — partly because graduate degree programs are often necessary for the highest-paying professions.
“The worst idea would be a continuation of the current moratorium that benefits among others highly paid surgeons, lawyers and investment bankers,” Summers noted. “If relief is to be given it should not set any precedent, it should only be given for the first few thousand dollars of debt, and for those with genuinely middle class incomes.”
Leading Democrats have debated for the past two years about possibilities for one-time loan cancellation efforts. Beyond the Biden administration’s campaign promise to remove $10,000 in debt per borrower, Senate Majority Leader Chuck Schumer (D-NY) has argued that “all President Biden has to do is flick his pen” and erase up to $50,000 per borrower, with no need for legislative action.
Yet a report from the Daily Caller News Foundation shows that 13 Democratic members of Congress who have supported some type of federal student loan cancellation policy reported a total of $1.5 million in loans, as indicated by financial disclosures.
Rep. Alexandria Ocasio-Cortez (D-NY) owes up to $50,000, according to the disclosures, and said at the end of last year that she owes $17,000. “I’m 32 years old now,” the lawmaker remarked. “I have over $17,000 in student loan debt, and I didn’t go to graduate school because I knew that getting another degree would drown me in debt that I would never be able to surpass. This is unacceptable.”
Ahead of any national plan for student loan cancellation, the Biden administration’s Department of Education has nixed debt for students who attended defunct for-profit universities, including Corinthian Colleges and ITT Technical Institute.