
<p class="wp-block-paragraph">The promise of student loan forgiveness has been a hot topic since President Joe Biden took office. With the recent announcement that the administration has forgiven approximately $127 billion in student loans for over 3.6 million borrowers, it seems like a dream come true for many. However, beneath the surface, there are deep concerns about the inflationary impact of this massive debt relief and the fairness of such a move to those who diligently paid off their loans.</p>



<p class="wp-block-paragraph">In June, the Supreme Court delivered a significant blow to Biden&#8217;s ambitious student debt cancellation plan. The court ruled that the administration lacked the authority to wipe out hundreds of billions of dollars in student debt for tens of millions of borrowers, citing the absence of a legal basis for such a broad-scale policy. While this ruling closed one avenue, Biden decided to explore alternative routes, utilizing various tools that <strong>no previous president had ever employed to such an extent.</strong></p>



<p class="wp-block-paragraph">One of the most pressing concerns regarding the student debt forgiveness program is its potential to exacerbate inflation, a problem that has plagued the nation for over a year. In a time when prices have been persistently on the rise, the cancellation of student debt has the potential to add fuel to the inflationary fire.</p>



<p class="wp-block-paragraph">The theory behind this is rooted in the idea that investors in U.S. Treasury securities, such as bonds and notes, only invest if they believe they will be repaid in the future. This notion establishes an intertemporal government budget constraint, which dictates that the real value of government debt must be matched by future surpluses of revenues over spending, properly discounted. In simpler terms, the government must generate enough resources to pay off its debt holders in the future.</p>



<p class="wp-block-paragraph">The critical insight is that the real value of debt is tied to real future resources. Given that most federal debt is nominal, the current price level becomes the variable that aligns these metrics, considering their expected future levels. In essence, debt cancellation reduces future interest and principal payments, effectively reducing expected net revenues. This reduction becomes insufficient to back the existing debt, leading to a rise in the price level to diminish the real value of debt as future revenues decline.</p>



<p class="wp-block-paragraph">Estimates suggest that debt forgiveness could lead to a monthly inflation rate of up to 1.7 percent, representing an upper bound estimate. Various mitigating factors could lessen this impact, such as fixed contractual prices, potential modifications or phase-ins of forgiveness programs, or even future tax hikes by Congress.</p>



<p class="wp-block-paragraph"><strong>The Inequity for Responsible Borrowers</strong></p>



<p class="wp-block-paragraph">While the inflationary consequences of student debt cancellation are alarming, it&#8217;s essential to address the fundamental unfairness of the policy. Those who diligently paid off their student loans over time, often through considerable personal sacrifices, are now faced with the prospect of being indirectly burdened by the debts of others.</p>



<p class="wp-block-paragraph">The cancellation would not erase the total amount of student debt but would shift the liability from individual borrowers to the federal government, ultimately placing it on the shoulders of taxpayers. This means that responsible individuals who repaid their loans will bear the financial brunt of the debt relief, even if they never benefited from the original loans in the first place.</p>



<p class="wp-block-paragraph">President Biden&#8217;s student debt cancellation program may seem like a lifeline for millions of borrowers drowning in student loan debt. However, the potential consequences of this policy cannot be ignored. The inflationary impact, combined with the unfairness towards those who responsibly paid off their loans, raises serious questions about the wisdom of such a move.</p>



<p class="wp-block-paragraph">Biden is determined to push as much of this as possible through, despite the consequences and the Supreme Court ruling. This, along with his other draconian spending packages has sent inflation through the roof, and their is no end in site. The damage to the savings accounts of responsible Americans is almost unmeasurable.</p>

Biden’s Illegal Student Debt Cancellation and the Inflationary Consequences
