Biden's extension of payment pause on federal student loans fuels inflation concerns

Washington, April 7 US President Joe Biden's newly announced plan to extend a pause on federal student loan repayments has drawn backlash from budget watchers and economists, who argue such untargeted move could add to inflation pressures.

"Extending the debt pause would be a massive handout to doctors and lawyers that would only feed more inflation and worsen the nation's balance sheet," said Maya MacGuineas, President of the Committee for a Responsible Federal Budget, a budget watch group.

In a statement on Tuesday, MacGuineas said the unemployment rate among college graduates with a bachelor's degree is 2 per cent which is in line with pre-pandemic levels and about as low as any time in the past two decades, Xinhua news agency reported.

"The debt pause disproportionately benefits high-income Americans with advanced degrees," she said.

"Surely there are better-targeted ways to support college affordability."

Former US Treasury Secretary Lawrence Summers said on Twitter that the administration's postponement "yet again" of student debt payments is "very hard to understand on policy terms".

"Wherever one stands on student debt relief this approach is regressive, uncertainty creating, untargeted and inappropriate at a time when the economy is overheated," said Summers, who has been warning about the danger of rising inflation as early as February last year.

In a statement, Biden, however, said "millions of student loan borrowers would face significant economic hardship" if loan payments were to resume on schedule in May, and "delinquencies and defaults could threaten Americans' financial stability".

Loan payments were first put on hold in March 2020 under former President Donald Trump and have since been extended five times. Biden announced on Wednesday that his administration would extend a pause on federal student loan repayments through August 31, 2022.

Six-in-10 likely voters supported extending the pause on student loan payments, according to a poll released in February.