Ex-Treasury Secretary Larry Summers rejected popular rebuttals to his criticism of sweeping student loan relief on Tuesday, one day after he warned in a viral Twitter thread that debt cancellation would make inflation even worse.

Summers expanded on his views even as President Biden purportedly nears a decision on whether to extend the ongoing pause on student debt payments.

Biden’s announcement is expected as soon as Wednesday, according to reports.

“Scarce public resources should be put to their highest and best use, regardless of how they are derived,” Summers tweeted Tuesday.

“Debt relief rather than head start? Adequate funding of fundamental science? COVID care? Strengthening opportunities for non-college workers? I don’t get it.”

Larry Summers
Larry Summers was Treasury secretary during the Clinton administration.
Getty Images
Student debt protestors
The federal pause on student loan payments expires at the end of the month.
Getty Images

With the student debt payment moratorium set to expire at the end of August, the White House has so far provided little indication of Biden’s plans. Progressive advocates have called on the president to wipe out $10,000 or more in student debt, but critics, including Summers, argue it would be irresponsible given the current inflationary environment.

Summers rejected comparisons between student debt proposals and other instances in the recent past in which the federal government intervened with economic relief measures.

“There is no analogy with bank bailouts. Student loans are grants that cost the government money,” Summers said. “The bank bailouts were loans at premium interest in which the government turned a profit.”

Student debt protestors
Progressives want President Biden to unveil a sweeping debt forgiveness plan.
Getty Images for We, The 45 Mill

Summers also noted that he was “not enthused” when the federal government offered “Paycheck Protection Loans” to small businesses during the economic upheaval of the COVID-19 pandemic.

“But, at the time it was extended, the economy was in the worst free fall in a century. Now, job openings are at record rates,” he added.

“Yes, not all loan reductions, or even monthly payment reductions, bear on consumer demand. But the direction is clear,” he added. “And, for several years, demand increases from broad forgiveness will exceed reductions from the IRA.”

President Biden
President Biden’s announcement is expected by as soon as Wednesday.
AFP via Getty Images

Summers sparked a debate on Monday after warning the government risked exacerbating inflation, which hovered near a four-decade high of 8.5% in July, by “offering unreasonably generous student loan relief.”

A sweeping student debt forgiveness policy could provide more fodder for Republican lawmakers who argue Biden has embraced reckless spending initiatives that caused the US economy to overheat.

“Student loan debt relief is spending that raises demand and increases inflation,” Summers tweeted at the time. “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.”

Summers also offered an alternative for the student debt relief issue.

“I think the best way to relieve student debt would be to allow it to be discharged in bankruptcy,” Summers said. “I’d support this reform. It would also penalize other private creditors, unlike government debt relief that would in part subsidize them.”

The substance of Biden’s announcement is still not clear, and the White House has provided few details. Bloomberg reported that the president was weighing debt forgiveness of $10,000 per borrower, with cancellations capped based on income.



Source link

Author

Comments are closed.