By Alí R. Bustamante, Photo: Unsplash, January 31, 2022
Decades of federal and state policy choices have placed the burden of financing colleges and universities on the backs of families instead of in the government’s hands, leading to today’s student debt crisis. Americans currently hold $1.7 trillion in student debt, with a disproportionate share of this debt falling on Black and brown families. Payments on student debt have been paused since the start of the pandemic, and President Biden has extended this pause through May 1, 2022. Advocates have continually called for the pause to be turned into a full cancellation of federal student debt. In response to these calls, we’ve seen arguments that canceling student debt would overheat the economy. However, these arguments misunderstand the current state of the economy and student debt’s role in it. Canceling student debt will support the economic recovery and promote equity without increasing inflation.
Canceling Student Debt Helps Americans Recover
The American economy is undergoing a rapid recovery from the COVID-19 pandemic. Temporary mismatches between supply and demand have led to rising prices in many sectors such as energy and automotives. Educational services are not driving inflation, and there is no evidence that canceling student debt would increase consumer prices in the future. Between 2020 and 2021, while student loan payments were paused, the annual price level for college tuition fees increased by 0.9 percent—a negligible impact on the 4.7 percent increase for the price index of all items. Addressing supply bottlenecks and supporting increases in production can bring these prices down while driving the economy toward full employment. Additionally, government efforts to address the excessive market power that firms have in setting prices will help further curb inflation. Over time, these kinds of policy responses to specific causes of price increases should drive prices back down, while boosting supply and enabling businesses to catch up with the pent-up demand from the pandemic. Rising wages and employment growth are evidence that these efforts are already underway. Today, our greatest concern should therefore be that we continue to facilitate the recovery until everyone who wants a job can find one. Canceling student debt would make the recovery more equitable and eliminate unnecessary financial constraint for job seekers.\
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