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Student loans: Biden administration leans towards forgiving $10,000 in debt

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Yahoo Finance's senior political columnist Rick Newman details the likelihood of the Biden administration using executive action to forgive a portion of student loan debt, in addition to the outlook on reducing the deficit amid rising interest rates.

Video Transcript

- Graduation season is here, and President Biden may finally be close to announcing his plan for student loan forgiveness to the tune of $10,000 per borrower. Yahoo Finance senior columnist Rick Newman is here to talk about that. Rick, it's politics today. So the right is furious and the left is furious with Biden's prospective plan.

RICK NEWMAN: Yeah, that's right. The left wants more so this goes all the way back to what we heard in the 2020 presidential primaries on the Democratic side. Bernie Sanders would forgive all debt, Elizabeth Warren wants to forgive up to $50,000, Biden thought he came down somewhere in the middle. He favored only $10,000 of student debt forgiveness.

But Biden had an important caveat when he was running for President, and he said Congress needs to pass a law to make that happen, to forgive that $10,000 per person. And Congress has not passed a law, and Congress is not going to pass that law because Democrats don't have the votes and they can't agree on what the number should be. So the pressure's been on Biden to do this through executive action. It's not entirely clear he can do this, but with Democrats in really poor shape leading into the November midterms, that's where we're getting these reports from the White House that Biden does plan to do this with executive action and see if it holds up in court.

The criticism against this, of course, is that this is expensive. It would cost the federal government a fair amount in foregone revenue and it seems very unfair to a lot of people who don't have student debt. That could be people who just never went to school, never went to college, and therefore never incurred the debt. They don't get anything. And also, there are people who have paid off their debt and they're not going to get anything out of this either. So who knows if this is going to end up being a net win for Biden or a net negative, but it does seem like he's going to have to do something within days or weeks.

- Well, speaking of everyone being upset, Rick, of course, in this week's Bidenomics, you're taking a closer look at the deficit. What do we need to know?

RICK NEWMAN: The CBO, the Congressional Budget Office, put out an update on this. The deficit looks better during the next couple of years than it did just last year. But there's one really striking thing in here that's based on inflation, which is now pushing interest rates up. This is a 10-year forecast the CBO does, and they're saying that interest payments on the national debt are going to rise from about 4% of all outlays right now, which is manageable, to 13% of outlays by the end of that 10-year period.

Just to give you some perspective, if that happens, by 2032, we will be paying $1.2 trillion per year just in interest payments on the debt, which would probably be about 20% larger than the defense budget in 2032. So people wonder like when are we actually going to have a debt crisis? Can this go on forever? And I don't know, I look at that and that seems just like a huge amount to pay just for interest on the debt. Taxpayers don't get anything for that. And that could be one of the things that brings us around to having to do something about it.

President Biden, meanwhile, has been taking credit for a big decrease in the annual deficit but that's mostly just because the stimulus spending from all that COVID aid is finally running down. But Biden has a bit of a talking point on that for this year. Future years don't look so good.

- Rick, how much does the deficit play into Biden getting some of his legislative priorities through? Because we've heard that this is obviously a huge issue when it comes to Senator Manchin. He's brought it up many times before. So if we do see the deficit come down a little bit, what does that mean then for Biden's future just in terms of his policies?

RICK NEWMAN: Well, right. It's the Manchin factor. So for all we hear people or members of Congress talking about, everybody hates the fact that we have so much debt but nobody ever wants to vote for anything, for doing anything about it because it's unpleasant. You either have to raise taxes or you have to cut spending. So Manchin has said, yes, there still is a chance we could get a sliver of that Build Back Better legislation passed this year with all Democrats voting for it, including him, but he wants-- if there's any new revenue such as tax increases on businesses, he wants some of that to go toward debt reduction.

And frankly, it's just because the CBO report makes this picture look a little bit better for this year and next year, it makes it look pretty bad for the years after that. So I don't think Manchin would give on that demand at all. So if we're going to get anything this year, it's going to-- according to Manchin, it's going to have to have a little bit of money for deficit reduction.

- All right. Rick Newman, thanks as always for hopping on here and joining us. Have a great weekend.