Biden to cancel student loans for millions of US borrowers Wednesday According to Reuters

© Reuters. FILE PHOTO: U.S. President Joe Biden pauses as he speaks during the signing ceremony of the “Inflation Reduction Act of 2022” at the State Dining Room of the White House in Washington, U.S. August 16, 2022. REUTERS/Leah Millis / File Photo

By Nandita Bose

WASHINGTON (Reuters) – U.S. President Joe Biden will announce on Wednesday that the government will pardon $10,000 worth of student loans for many of the country’s college students, a move that could boost support for Democrats in the midterm elections, but could increase inflation.

Economists say the debt write-off will free up hundreds of billions of dollars in new consumer spending, adding a new wrinkle to the country’s inflation battle.

Democrats have pushed Biden to forgive up to $50,000 per borrower, arguing that the debt leaves young Americans unable to save to pay for a home or other major consumer purchases. Republicans argue the move will disproportionately help higher earners.

US consumers shoulder $1.75 trillion in student loan debt, much of it held by the federal government, due to significantly higher private and state-backed college tuition than most other rich countries.

The administration will extend the pause on student loan payments until the end of the year, and announced plans to write off student debt of up to $10,000 for borrowers earning less than $125,000 a year.

It will also cancel up to $20,000 in debt for Pell grant recipients, about 6 million students from low-income families.

A study by the New York Federal Reserve found that a $10,000 cut in federal debt per student would amount to $321 billion in federal student loans and eliminate the entire balance for 11 0.8 million borrowers, or 31% of them.

The pandemic-related government will suspend student loan interest and payments due at the end of August. Borrowers’ balances have been frozen since the start of the COVID-19 outbreak- 19, most federal student loans need no payments as of March 2020.

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