Obama's top economic advisor slams Biden's forgiveness of student loans, warns it could increase inflation and raise tuition costs

AP Photo/Evan Vucci, File

Former President Barack Obama’s top economic advisor, Lawrence Summers, warned on Monday that the Biden administration’s plan to cancel debt in student loans will increase inflation and worsen already out-of-control tuition costs. 

Biden White House officials are reportedly leaning toward student debt cancellation of $10,000 per borrower earning less than $125,000 a year. The figure would include tens of thousands of former students still paying off their loans. An announcement could be made as early as Tuesday afternoon. 

A decision to cut student debt is in line with Biden’s promises during the campaign trail to eliminate student debt in its entirety – and was one of the main reasons young progressives voted for him. 

The move, which can be seen as cynical, comes as Democrats face a tough challenge against their Republican contenders in the upcoming November midterms. 

Additionally, the push to cancel student debt comes as the White House deliberates whether to extend the existing moratorium on federal student loan payments, which are set to expire on August 31. 

Describing the student loan cancellation as “unreasonably generous,” Summers said that Biden’s poor economic move could lead to even worse inflation and prompt colleges to raise their prices. 

I hope the Administration does not contribute to inflation macro economically by offering unreasonably generous student loan relief or micro economically by encouraging college tuition increases.

— Lawrence H. Summers (@LHSummers) August 22, 2022

“Every dollar spent on student loan relief is a dollar that could have gone to support those who don’t get the opportunity to go to college,” Summers stated on social media. “Student loan debt relief is spending that raises demand and increases inflation. It consumes resources that could be better used helping those who did not, for whatever reason, have the chance to attend college. It will also tend to be inflationary by raising tuitions.” 

“The worst idea would be a continuation of the current moratorium that benefits among others highly paid surgeons, lawyers and investment bankers,” he added. “Student loan debt relief is spending that raises demand and increases inflation. It consumes resources that could be better used helping those who did not, for whatever reason, have the chance to attend college. It will also tend to be inflationary by raising tuitions.” 

“The worst idea would be a continuation of the current moratorium that benefits among others highly paid surgeons, lawyers and investment bankers,” said Summers. “If relief is to be given it should not set any precedent, it should only be given for the first few thousand dollars of debt, and for those with genuinely middle-class incomes.” 

In other words, the poor will get poorer and the rich will get richer as those that did not have the opportunity to attend college will have to pick up the tab and pay for loans taken out by white-collar earners who were wealthy enough to take out the college tuition loans in the first place.