President Biden on Wednesday claimed that his administration’s move to restart frozen federal student loan payments at the end of the year is an "economically responsible course" that will prevent his targeted student loan cancellation from having a "meaningful effect on inflation."
Biden announced Wednesday that he will deliver on a campaign "commitment" to cancel $10,000 of federal student loan debt for certain borrowers making less than $125,000 per year, and up to $20,000 for Pell Grant recipients, while extending the pause on federal student loan payments through the end of the year.
Biden said during remarks at the White House Wednesday that by resuming student loan payments that have been frozen during the COVID pandemic "at the same time as we provided targeted relief," his administration is taking an "economically responsible course."
President Joe Biden announces his student loan plan with Education Secretary Miguel Cardona on Aug. 24, 2022, at the White House. (Olivier Douliery/AFP via Getty Images)
"As a consequence, about $50 billion a year will start coming back into the Treasury because of the resumption of debt," Biden said, adding that experts "agree that these actions taken together will provide real benefits for families without meaningful effect on inflation."
According to a Penn Wharton Budget Model, a one-time maximum debt forgiveness of $10,000 for borrowers who make less than $125,000 will cost around $300 billion for taxpayers. Some economists argue that will spur inflation. The $300 billion adds up to about the amount of deficit reduction included in the so-called Inflation Reduction Act passed earlier this month.
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Senate Minority Leader Mitch McConnell, R-Ky., slammed the move, saying Democrats have "found yet another way to make inflation even worse, reward far-left activists, and achieve nothing for millions of working American families who can barely tread water."
Biden brushed off claims that the plan would add to the debt, citing previous debt reduction and declaring that he would "never apologize" for helping the "American middle class."
The nation's federal student debt now tops $1.6 trillion after ballooning for years. 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.
The national debt, according to the Treasury Department, currently sits at $30.7 trillion.
The announcement comes as the United States is facing record-high inflation. But when asked if the plan would increase inflation, a senior administration official said the steps the Biden administration is taking will offset each other, noting there are "certain conditions and assumptions under which it could well be neutral or deflationary."
The official said that the "combination" of an extension in the pause in loan payments and the "targeted debt relief" will "largely offset" inflation.
"That's our view," the official said, adding that "if all borrowers claim the relief that they are entitled to, 43 million federal student loan borrowers will benefit, and of those, 20 million will have their debt completely canceled."
Biden on Wednesday said that under his new plan, "nearly 45% can have their student debt fully canceled."
"That's 20 million people who can start getting on with their lives," Biden said.
But the student loan cancellation doesn't help all student loan borrowers. Biden said the forgiveness "only applies to those earning less than $125,000."
Biden also said that borrowers with undergraduate student loans are able to "cap repayment at 5% of your monthly income."
Pandemic-era payment freezes were set to end on Aug. 31, but Biden on Wednesday also extended the payment pause "one final time through Dec. 31, 2022."
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Republicans are blasting the Biden administration's move, with Republican National Committee Chairwoman Ronna McDaniel calling it "Biden's bailout for the wealthy."
A sign asking President Biden to cancel student debt is posted on Pennsylvania Avenue near the White House on July 27, 2022. (Jemal Countess/Getty Images for We, The 45 Million)
Some, like Sen. Mitt Romney, even suggested the decision was a cynical ploy by the White House to keep young voters in its column ahead of the November midterms.
"Sad to see what’s being done to bribe the voters," said Romney, R-Utah. "Biden's student loan forgiveness plan may win Democrats some votes, but it fuels inflation, foots taxpayers with other people’s financial obligations, is unfair to those who paid their own way and creates irresponsible expectations."
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McConnell said: "President Biden’s student loan socialism is a slap in the face to every family who sacrificed to save for college, every graduate who paid their debt, and every American who chose a certain career path or volunteered to serve in our Armed Forces in order to avoid taking on debt. This policy is astonishingly unfair."
McConnell noted that the "median American with student loans already has a significantly higher income than the median American overall."
He added: "This is the one consistent thread that connects Democrats’ policies: Taking money and purchasing power away from working families and redistributing it to their favored friends."
Fox News' Haris Alic contributed to this report.
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