UAB economist not expecting loan forgiveness plan to impact inflation short-term, but long-term is more complex

Loan forgiveness & impact on inflation
Published: Aug. 25, 2022 at 10:08 PM CDT|Updated: Aug. 25, 2022 at 10:34 PM CDT
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BIRMINGHAM, Ala. (WBRC) - Some people are worried the student loan forgiveness plan could worsen inflation. A local economist says that’s a slim possibility, if at all, for the short-term period.

He says the long-term impact could be a different story, but it’s dependent on a lot of factors.

Ben Meadow, an Assistant Professor of Economics at UAB, discussed the inflation impact with WBRC.

Meadows says the main reason inflation won’t be affected right away is because student loan payments have been paused since 2020 and that money is more than likely being dumped into the economy already.

Basically, the money people would have been using to pay off student loans is going to purchase other things right now anyway. He says if student loans are forgiven, this same trend will continue.

“When these students loan payments kick back in would be when we would expect perhaps to see inflationary pressures kick in, but it’s possible that folks who would be reallocating their resources to pay for student loans maybe already doing that,” said Meadows. “So the picture’s a lot more muddied than we might expect it to be.”

Meadows says whether or not we will see inflation rise because of student loan forgiveness all has to do with how borrowers used or didn’t use the extra money the past few years. He says we’ll have to see.

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