Hello printer my old friend ♫ ♪ ♬ ♪ ♪ ♫ ♩… I’ve come to talk with you again.
If you were awake and ventured near the internet, phone or TV yesterday, then you clearly know that Biden is keeping his promise to lower and cancel student debt. Here’s how it works: $10,000 is forgiven if you didn’t receive Pell grants, $20,000 is forgiven if you did, and forgiveness only applies to those earning less than $125,000. In addition, the student loan pause is extended through December 31, 2022, and if you do have loans, you can cap payments at 5% of your monthly income.
I am not going to argue either side of the debate as to whether loans should be forgiven, but I will fill you in on some facts so that you can make an informed opinion.
The plan will cost about $300 billion.
America’s student loan debtors currently owe $1.7 trillion.
37.9% of Americans have a college degree.
13.1% percent of U.S. adults have an advanced degree.
The student loan payment freeze started in March, 2020.
For the 2021-2022 academic year, the average annual price of tuition and fees came to:
$38,070 at private colleges
$10,740 at public colleges (in-state residents)
$27,560 at public colleges (out-of-state residents)
“More than 43 million Americans have federal student debt, with almost a third owing less than $10,000 and more than half owing less than $20,000, according to the latest federal data.”
Roughly 60% of the debt canceled would be held by those making $82,400 or less, according to a report from the Wharton School.
According to the administration, “90% of the eligible beneficiaries make under $90,000.”
Now that we have the numbers out of the way, we can turn to Dumbo and Horton, the 2 elephants casually hanging out in corner of the room.
1. Does this cause inflation?
2. Who pays?
A CNBC poll found that 59% of Americans believe that this decision will make inflation worse. They are likely right. While student loans are being forgiven, they are still being paid - by the government. The banks are likely the real winners, as the US government is the best possible counter party.
If the government prints money to pay the debt, inflation worsens. And if the government decides to increase taxes, then America as a whole takes on the burden. Either way, we are all paying.
There is no free lunch, so there is no free tuition.
The upcoming inflation prints should give us an idea of how impactful this decision is, although it will take a long time to play out. Since American voters have the attention span of spastic juvenile gnats, it will be long forgotten by the time anyone decides to dig in and figure out the impact.
And considering Biden failed simultaneously announce a plan to increase taxes, it seems as though the government wants to pay.
Do you hear that sound? The money printer is going Brrrrrrrrrrrr.
And whatever they (the government) pay, we pay in terms of inflation. I can see the arguments on both sides of this issue, but any expansion of the balance sheet comes with the cost of inflation.
The government can’t have their cake and eat it too.
They’ll eat our cake instead.
*NO CHARTS TODAY, NOTHING HAS CHANGED!