President Joe Biden announced an executive order in late August that would allow low to mid-income borrowers to cancel $10,000 in student loan debt. There was a mixed assortment of emotions when it came to the decision.
On the right, there were large amounts of disappointment and criticism as many didn't believe Biden has the authority for such a move and that it doesn't deal with the underlying causes of rising tuition. Others saw the move as being cynical and a way to curry favor with the Party's base and boost turnout for the midterm elections.
On the left, many applauded the move, while others were dismissive, seeing it as not making a significant dent in the six figures of loans owned by many individuals. Others see it as a prelude to an even bigger move under a more left-leaning Administration.
While the political impact of the move can be debated endlessly, investors are equally interested in its impact on the economy and specifically, inflation.
It's certainly true that, in a vacuum, student loan relief would be inflationary as it would marginally divert some portion of money from loan repayments into discretionary spending. However, it's likely to be a relatively small portion of money in the three-digit range that would be obscured by other factors like changes in economic growth rates, tax policy, or inflation.
It's more likely to have a psychological impact in terms of increasing consumer confidence among borrowers. And, the $10,000 figure geared towards low and middle-income borrowers means that it could have a meaningful impact on many people who took out money for vocational training or certifications.
There is a potential moral hazard issue at play as well. Many borrowers might assume that complete relief of student loans could be coming, especially as this has become a campaign issue for some Democrats, which could lead them to stop making payments totally. It might also let many colleges and universities off the hook for enrolling students in programs for the tuition fee even knowing that a student's chances of getting a job with a sufficient salary would be slim.