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Larry Summers Opposes Full Student-Loan Forgiveness

About 45 million people owe approximately $1.7 trillion in student loan debt, or an average of about $38,000 per borrower.
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President Joe Biden will likely announce soon the fate of student debt, as the current pause in federal student-loan payments is set to expire Sept. 1.

About 45 million people owe approximately $1.7 trillion (or about $38,000 per person). Debtors are hoping to see their obligations partially or fully dropped.

The most likely decision by Biden appears to be debt forgiveness of about $10,000 per borrower, informed sources told The Wall Street Journal. And for now the administration’s thinking is that would apply only to people earning less than about $125,000, they said.

Already, the Biden administration has erased about $25 billion in student loans, mainly for borrowers ripped off by for-profit schools, disabled students, and those in public service loan-forgiveness programs.

Student Loans Can Be Dream-Crushing

The massive debt held by about 14% of Americans is crushing many of their dreams. “It leaves some students broke on the day after graduation. Others labor for years only to find their balances larger than when they graduated,” a New York Times editorial notes.

“Around 40% of borrowers never graduate from school in the first place. And a third of the debt will never be paid off, according to the Department of Education," The Times said.

But The Times, like some other experts, doesn’t favor full forgiveness.

“Canceling this debt, even in the limited amounts that the White House is considering, would set a bad precedent and do nothing to change the fact that future students will graduate with yet more debt.”

Larry Summers View

Harvard economist Larry Summers also opposes complete cancellation of student debt. The former Treasury secretary, writing on Twitter, pointed to the inflationary impact of full forgiveness. Consumer prices soared 8.5% in the 12 months through July.

“I hope the Administration does not contribute to inflation macroeconomically by offering unreasonably generous student loan relief,” Summers said.

“Student loan debt relief is spending that raises demand and increases inflation…. It will also tend to be inflationary by raising tuitions.”

There is a better way to use money that would go to student-loan forgiveness, Summers said. “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.”

The status quo certainly won’t do, Summers said. “The worst idea would be a continuation of the current moratorium that benefits among others highly paid surgeons, lawyers, and investment bankers.”

That doesn’t mean Summers is completely opposed to aid for debtors. But, “if relief is to be given, it shouldn’t set any precedent, it should only be given for the first few thousand dollars of debt, and for those with genuinely middle class incomes.”