Obama economist slams Biden's 'reckless' student loan forgiveness order

AP Photo/Susan Walsh, File

Jason Furman, who was in charge of President Barack Obama’s Council of Economic Advisors, has slammed the Biden administration’s “reckless” student loan forgiveness order. 

Following Biden’s announcement that student loan debt up to $10,000 will be waived for anyone earning up to $125,000 and double that figure for those who received Pell Grants. Furman, a key member of the Obama administration, posted a massive thread criticizing the move.  

“Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless,” he wrote. “Doing it while going well beyond one campaign promise ($10K of student loan relief) and breaking another (all proposals paid for) is even worse.” 

He added, “The White House fact sheet has sympathetic examples about a construction worker making $38K and a married nurse making $77,000 a year. But then why design a policy that would provide up to $40,000 to a married couple making $249,000? Why include law and business school students?” 

The economist estimated that canceling around $20,000 in student loans per student would increase inflation by 0.2% to 0.3%.

The White House fact sheet has sympathetic examples about a construction worker making $38K and a married nurse making $77,000 a year.

But then why design a policy that would provide up to $40,000 to a married couple making $249,000? Why include law and business school students? pic.twitter.com/463YMmCT9g

— Jason Furman (@jasonfurman) August 24, 2022

You can't use one baseline (interest payments suspended) to argue this will constrain demand & then a different baseline (interest payments restored) to describe the benefits. That is incoherent, inconsistent & indefensible cherry picking--I hope the White House doesn't do it.

— Jason Furman (@jasonfurman) August 24, 2022

There are a number of other highly problematic impacts including encouraging higher tuition in the future, encouraging more borrowing, creating expectations of future debt forgiveness, and more.

— Jason Furman (@jasonfurman) August 24, 2022

The stimulus is relatively small (a multiplier of ~0.1). So the inflation impact is likely to be about 0.2-0.3pp. That is $150-200 in higher costs for a typical household.

If the stimulus matched what advocates used to argue the inflation would be higher. https://t.co/8MrZ1G1FUM

— Jason Furman (@jasonfurman) August 24, 2022

Finally, it's not obvious to me that this is reasonable for a President to do unilaterally. A number of lawyers (and political leaders) have argued inconsistent with the law. Even if technically legal I don't like this amount of unilateral Presidential power.

— Jason Furman (@jasonfurman) August 24, 2022

Miguel Cardona, Biden’s Education Secretary, who is not an economist, rebutted Furman’s warnings. 

REPORTER: Former Obama economic advisor Jason Furman said your student loan bailout plan will encourage higher tuition, encourage more borrowing, and create expectations of future debt being canceled. Is he wrong?

Biden Education Secretary (not an economist): “Oh, definitely.” pic.twitter.com/6uIA7ZYZRH

— RNC Research (@RNCResearch) August 24, 2022

Doocy: "The people that already paid their student loans, they don't get anything out of this deal."

Ed Sec Cardona: "Right."
pic.twitter.com/w6YQotUaAK

— Greg Price (@greg_price11) August 24, 2022

Cardona also admitted that anyone who already paid the student loans would not be getting any benefits from the executive order. Effectively, anyone who showed an ounce of fiscal responsibility will have to foot the bill for other students' debts.