Ending the Student Debt Pause in January is a Cost, Not an Offset

Last week, the Biden administration announced a plan to forgive a portion of outstanding student debt, extend the moratorium on student loan payments and reform the loan repayment plan, which we estimate would cost around $500 billion over ten years and boost inflation by 15 to 27 basis points next year. Claims that these costs would be “paid for” and the inflationary effects offset are misleading at best and in many cases false.

Although the White House has yet to release any cost estimates, they and others have claimed the inflationary effects would be negligible when accounting for the restart of student debt payments that have been paused since early in the COVID-19 pandemic.  They have also suggested that the plan would be paid for in part with these payments.

In fact, the opposite is true. Payments were scheduled to restart on August 31st. Extending the pause to January 1st will cost the federal government roughly $20 billion and add to the inflation rate, not the opposite.

The claim that ending the pause would save money or reduce inflation requires assuming the pause would otherwise continue to be in effect past its scheduled expiration. Yet the pause was always designed to be a temporary pandemic-era policy – implemented using the President’s emergency authority – and not a permanent part of the system.

In fact, the President’s own Mid-Session Review of his budget released one day before the debt cancellation announcement, assumed the pause would end as scheduled. The White House clearly never intended the policy to be permanent and taking credit for benefits from an expiring provision is misleading.

Here’s the reality – the repayment pause will cost the federal government roughly $155 billion, including $105 billion from President Biden’s five different extensions. It has added to overall inflation and will continue to do so as a result of this extension.

In total, President Biden’s student debt actions have added about $750 billion to the deficits, including an estimated $500 billion from last week’s announcement alone. And we find that the policies will add more to inflation than even extending the payment pause.

Claims that the President’s student debt plan is either paid for or non-inflationary are not credible, relying on baseline tricks designed to create confusion rather than clarity. The White House should release estimates of the true cost.