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Published: May 06, 2022 12 min read
Collage of a student in a graduation cap and gown going up the stairs made from a hundred dollar bill
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The increasingly real prospect of student loan forgiveness is sparking highly contentious debates in America. But beyond the arguments about who (if anyone) should benefit from relief and how much should they get, there's another question to consider: If student debt cancellation becomes a reality, how would it affect inflation?

In 2020, President Joe Biden campaigned on canceling $10,000 of student debt per borrower. In recent weeks, the Biden administration has signaled student debt forgiveness could soon be on the way. This is most likely to be accomplished via executive action, even though in the past Biden has expressed a preference for Congress to pass legislation forgiving some level of student debt.

In the meantime, advocates, students and lawmakers to his left flank have been urging the president to forgive even more — from $50,000 per borrower to total student debt forgiveness, and they seem to be gaining some ground.

Depending on what flavor of forgiveness the Biden administration lands on, the price tag could range anywhere from $321 billion (for the $10,000 proposal) all the way up to about $1.6 trillion (for total student debt cancellation).

Some critics of student loan forgiveness say that this kind of massive relief initiative would inevitably lead to even higher inflation than what we've experienced in recent months. Making student debt disappear, the thinking goes, would be the equivalent of putting more money into the hands of millions of Americans. And as these beneficiaries increase their spending on any number of goods and services, it would cause inflation to rise.

At 8.5%, inflation is at a 41-year high and has become a top economic concern of Americans. So it's no surprise people are worried that government spending on loan forgiveness could make inflation even worse.

However, according to higher-education experts, economists and recent research, canceling student debt is likely to bump up inflation only in a minor way. In the grand scheme of the student forgiveness debate, experts told Money that inflation is actually among the least of their worries.

Student loan forgiveness, stimulus checks and inflation

It might be tempting to think of student loan forgiveness in the same vein as another monumental government relief effort: stimulus payments.

Many economists agree that stimulus checks sparked consumer demand and contributed to our recent inflationary woes. Would canceling as much as $1.6 trillion of student debt cause inflation to spiral out of control? Some critics of the Biden administration are saying that it would.