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Purdue economist says Biden student loan forgiveness unlikely to impact economy - regardless of Supreme Court ruling

A Purdue economist says Biden’s student loan forgiveness plan is unlikely to impact the economy - regardless of how the Supreme Court rules. (FILE PHOTO WBAA News/Ben Thorp)

The U.S. Supreme Court is set to release a decision on legal challenges to President Joe Biden’s student loan forgiveness program sometime this summer.

Up to $20,000 in federal student loans per person could be forgiven. A Purdue economist says regardless of the outcome, impacts on the economy will be largely minor.

According to the Education Data Initiative, Indiana borrowers have roughly $30 billion in federal student loans. The average borrower holds over $30,000 in student loan debt.

But according to Kevin Mumford, professor of economics at Purdue University, the economy is unlikely to see large impacts whether Biden’s forgiveness plan is upheld or struck down. He said during the student loan pause, borrowers largely paid off other types of debt.

“People tend to just save it or pay down other sources of debt. Very little of it - and very little means in the first year 15 percent of it might get spent - as real consumption. So it’s not providing some big boost to the economy,” he said.

Mumford said that means student loan forgiveness is also unlikely to have any real impact on inflation.

“The argument for it is that if it were to really boost up people’s consumption, or if it encouraged people to go out and get home loans, then you would see positive pressure on home prices…” he said. “But what we just finished saying is the evidence suggests there’s not a lot of that. There’s not a lot of pressure on consumption.”

More concerning to Mumford is the question of who the loan forgiveness program benefits. He said it targets college graduates who are higher earners relative to non-college graduates.

“Those are some of the other concerns with this program,” he said. “It would be very expensive to forgive all the student loans, and the money could probably be targeted in a much better way towards those that could really use the help instead of high-earning college graduates.”

Mumford said Biden’s loan forgiveness program would cost roughly as much as the U.S. has spent on temporary assistance for needy families, or TANF, in the last 20 years.

The Supreme Court’s ruling is expected sometime in June or July.