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Economist weighs in on whether student loan cancellations will fuel inflation

student loans
Posted at 5:47 PM, Aug 26, 2022
and last updated 2022-08-26 19:18:40-04

KANSAS CITY, Mo. — President Biden's plan to cancel some student loan debt is making borrowers happy, but some worry about the proposal's effect on inflation.

“It is going to have a big impact on me," said Katie Camlin. "It makes me less anxious about the payments starting up again for sure.”

Camlin said she has $26,000 in student loan debt and has struggled to pay it off.

“When I was student teaching, I worked on nights and weekends so I could afford gas money," she said. "And then in my first year of teaching, I made only a thousand dollars more in salary than the total amount of my loan. So, in my first year of teaching, I watched my loan go up despite making income-driven monthly payments."

According to information from the White House, individuals making under $125,000 or married couples making under $250,000 are eligible for debt relief.

Borrowers with Pell Grants get up to $20,000 in debt forgiveness while those without Pell Grants get up to $10,000 in debt relief.

The president's action is being criticized by Sen. Roger Marshall of Kansas.

Marshall, a Republican, stated on his Twitter account the decision was "unfair" and would "exacerbate inflation."

KSHB 41 asked economist Frank Lenk if the debt cancellation could fuel inflation.

“I don’t think so," Lenk said. “What’s being forgiven is what’s already been forgiven for the past two or three years, so if it’s going to have an inflationary impact, we might have already been having it."

Lenk is chief economist for the Mid-America Regional Council.

He said there could be a positive consequence of canceling student loan debt.

“When people have less debt, their credit scores go up, they’re better able to buy a home," he said. "They’re better able to change jobs."

Camlin said with reduced debt she can focus on investing in her future.

"My partner and I would love to buy a house, and that’s a whole other topic on the housing market, but that’s something we’ve been wanting to do for a really long time and so having less debt makes that more of a possibility," Camlin said.

She knows some people see the president's decision as a handout, but feels the system is broken and debt relief can help fix the current system.

“I understand people saying you agreed to this loan because I did. I agreed to it, I took the loans," Camlin said. "But the system was just so messed up. You shouldn’t be making your monthly payments and still seeing your balance go up."