FRESNO, Calif. (KSEE/KGPE) – Forgiving thousands of dollars in student loans could be harmful to the national debt, warns economics professor with Fresno City College Aaron Pankratz, but could have benefits alongside it too.
Pankratz said Wednesday morning, ahead of President Biden’s official announcement that up to $20,000 in student loans was to be forgiven, that such a move would have both short-term and long-term effects.
“So I think short term this will be a real boost to our economy,” said Pankratz. “This is a lot of additional spending that can happen in our economy immediately.”
But Pankratz warned that in long term the loan forgiveness will have to be paid for, with a potential impact on the national debt as the move is essentially taking on debt to pay off debt.
It could also reverse the intended impact of the recently passed Inflation Reduction Act as there would be more money available and drive prices up.
“The way prices will often will increase is just through spending,” said Pankratz. “The more spending we have, the more money we have circulating in the economy, dollars being spent over and over, really causes prices to increase.”
Pankratz added that every policy has side effects – and those with no student loan debt to forgive will only be feeling the side effects and not the direct benefit.
“We are taking on additional debt. This is hundreds of millions of dollars that we would be adding to our national debt, which has been ballooning in recent years. Someday we’re going to have to pay the piper, so to speak, with this national debt and really raise taxes in the future to pay for these sorts of programs.”
Pankratz hopes that the short-term benefit to families will ultimately translate to them being in a better place in the future to pay for the potentially higher taxes.