The Congressional Budget Office (CBO) is predicting that student-loan forgiveness could radically inflate the deficit in the final month of the fiscal year.
- The CBO says that the federal deficit dropped this fiscal year from $1.77 trillion to $944 billion due to the end of pandemic programs and increased revenue from improvement in the economy.
- However, additional spending from President Joe Biden’s student loan executive order is going to radically increase the deficit.
- “If significant numbers of student loans are modified in September, the 2022 deficit could be considerably larger than CBO has estimated. Some of the announced changes will increase deficits in future years,” says CBO.
Why it’s news
The White House’s claims that reduced deficit spending creates space for student-loan forgiveness do not come without consequences.
“The White House is cagey about the cost, and says it doesn’t matter anyway since the federal deficit is on track to fall by about $1.7 trillion this fiscal year from last year’s $2.7 trillion, which was the second largest in history after 2020,” reports The Wall Street Journal.
As we previously reported, the policy is projected to increase deficits by hundreds of billions of dollars, increase inflation, and up the risk of a recession. The negative impact on the economy will subsequently harm financially vulnerable borrowers and contribute to ongoing market volatility.
The White House is correct in its assessment that outstanding student loan debt is a burden upon the middle class, as we previously reported.
The effects of such massive spending without congressional approval and market volatility stand to further inflate the currency and extend the predicted recession.
“By the White House’s twisted logic, Americans who borrow $50,000 to buy a car one year will have saved $50,000 in the next, which they can spend on a luxury vacation in the Caribbean. It’s no wonder so many students don’t feel they should have to pay for their indulgences when political leaders don’t either,” editorializes The WSJ.
“The deficit is almost certain to grow next year as money from the most recent Democratic spending bills rolls out while slower economic growth and falling equity prices could hurt tax revenue. The $1 trillion for student loan write-offs is all unfinanced and will add to deficits in the future.”