Student rates

Larry Summers warns student debt relief could make inflation worse

Former Treasury Secretary Larry Summers on Monday warned the Biden administration against “unreasonably generous” student loan relief, arguing that additional spending could exacerbate the ongoing inflation crisis.

Summers, a Harvard University professor who served in the Clinton and Obama administrations, has repeatedly sounded the alarm over rising inflation and has spent much of 2021 arguing that the Biden team, as well as Federal Reserve officialsunderestimated the risk of soaring consumer prices.

“I hope the administration does not contribute to inflation on a macro level by offering unreasonably generous student loan relief or on a micro level by encouraging tuition increases,” he wrote in a series of tweets.

Summers said spending on student debt relief is increasing demand and driving up inflation — in part by forcing universities to raise tuition — and suggested Biden should instead focus on directing resources to support “those who do not have the opportunity to go to university.”

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Larry Summers, President Emeritus of Harvard University, speaks during a discussion on ‘A Reform Agenda for European Leaders’ at the World Bank/IMF Annual Meetings in Washington on October 9, 2014. (Reuters/Joshua Roberts/Reuters Photos)

He called on the president to let the federal student loan payment break expires at the end of August instead of extending the moratorium for the seventh time. The freeze – which also fixed the interest rate at 0% – began in March 2020 at the start of the coronavirus pandemic.

About 41 million Americans are benefiting from the federal government’s pause on student loan repayments, which has been extended six times – twice by former President Trump and four times by Biden. At least $72 billion has been given in student loan interest relief alone.

But the moratorium is set to officially end on August 31, meaning millions of borrowers will have to start repaying their loans. With just over two weeks until payments resume, Biden did not indicate whether he plans to further delay the payment freeze.

“The worst idea would be a continuation of the current moratorium which benefits highly paid surgeons, lawyers and investment bankers, among others,” Summers said.

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The White House hinted last week that another extension to the payment freeze was still under consideration. Administration officials have promised a response on the moratorium, as well as a broader loan forgiveness, by the end of the month.

“Although I don’t have an announcement here today, I will tell you that we are having daily conversations with the White House, and borrowers will hear directly from us soon when a decision is made,” the secretary said. to Education, Miguel Cardona, last week. during an interview on “CBS Mornings”.

President Biden

President Joe Biden speaks on the economy at Max S. Hayes High School in Cleveland, Ohio on July 6, 2022. (Saul Loeb/AFP via Getty Images/Getty Images)

The decision comes as Biden faces mounting pressure from progressive lawmakers not only to delay restarting payments, but also to completely erase student loan debt from millions of Americans.

Biden has campaigned to forgive billions of dollars in student loan debt but has so far written off only a fraction of the amount pledged for about 72,000 borrowers, angering some progressives.

Outstanding student debt has doubled over the past decade, approaching a staggering $1.7 trillion. About one in six American adults owe money on federal student loan debt, which is the largest amount of non-mortgage debt in the United States. It has been cited as a major impediment to people’s “economic life” by the chairman of the Federal Reserve. Jerome Powell.

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Critics have argued that canceling student loan debt is beyond the president’s authority granted by Congress. Debt cancellation would also add to the country’s already burgeoning national deficit, which hit a record $30 trillion last year.