Former Harvard University president and Treasury Secretary Larry Summers took to Twitter Monday to say that student debt relief could have negative effects on inflation. The debate on whether forgiving student debt is considered government spending, and therefore inflationary, has grown in recent days, especially after Education Secretary Miguel Cardona said that the Biden administration will make a decision on student loans “within the next week or so.”
“Student loan debt relief is spending that raises demand and increases inflation. It consumes resources that could be better used helping those who did not, for whatever reason, have the chance to attend college. It will also tend to be inflationary by raising tuitions,” Summers tweeted.
“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,” he continued.
A recent blog post from the Committee for a Responsible Federal Budget said that if $10,000 of student debt were canceled for all families making under $300,000 a year, it would reduce nearly 10 years of deficit reduction from the Inflation Reduction Act by costing the federal government nearly $230 billion.
The Roosevelt Institute published a response to the CRFB, which said that debt forgiveness is not government spending but the erasure of government liabilities, which they say has a lesser impact on inflation.
A June article from The New York Times found that the Biden administration was carefully considering the possible inflationary impacts of debt relief.
Treasury Secretary Janet Yellen said in a hearing in May that student loan forgiveness “could be good for the economy” and that “there are some trade-offs involved that need to be analyzed.” Yellen also said that she would support whatever decision Biden makes on debt relief.