President Joe Biden’s announcement that he is canceling $10,000 in federal student loans and $20,000 in Pell grants for millions of borrowers was met with a mixed reaction from investment advisors Wednesday.

Now that Biden has followed through on his campaign promise to reduce the burden of student debt, those 13% of Americans, or 40 million, who have outstanding loans from attending college will definitely benefit, said Kevin Lum, founder and CEO of Los Angeles-based Foundry Financial, in an interview with Financial Advisor.

Under Biden’s plan, loan cancellation is available to any individual borrower who earns $125,000 or less annually or a couple earning $250,000 or less. Biden will also continue the pandemic pause on student loan payments through the end of the year. Borrowers were supposed to resume payments beginning August 31.

“For my younger clients, one of the biggest financial obligations hanging over them is student loan debt. This loan forgiveness will definitely be welcome,” Lum said.

While pundits worry about inflation, Lum added, “I don't see any immediate inflationary impact, because student loan repayments have been delayed by two years at this point—so it's not like it will cause a giant influx of money into the economy. But it will help families strengthen their balance sheet and feel more secure for the future.”

New analyses by the University of Pennsylvania’s Penn-Wharton Budget Model and the Committee for a Responsible Federal Budget found that student loan forgiveness would benefit top earners and highly educated grads most and worsen inflation.

The Penn-Wharton Budget Model estimated that forgiving federal college student loan debt will cost between $300 billion and $980 billion over the next 10 years. 

Most of the debt is held by borrowers in the top 60% of income distributions. Some 87% of American adults don’t have student loans, Penn-Wharton reported.

Jason Anderson, founder and owner of Gradmetrics, an Overland Park, Kan.-based fee-only college and student loan planning firm that works with both investment advisors and individuals, said “From the college planning side, it’s good for borrowers. It’s positive for my clients. But I do see concerns for the economy, inflation and taxpayers who have to pay for this.”

While the forgiveness may completely wipe out debt for 14 million borrowers, Anderson said he routinely works with graduates who have accrued between $100,000 to $350,000 in loans to attend law or medical school or the Ivy League.

“This forgiveness really won’t make a dent for them,” said Anderson, who also worried that wiping out loan balances encourages future loan taking by those who will want their loans forgiven, too. He also said that Biden’s policy meanwhile fails to address the concern of wealthy colleges that are continuing to ratchet up tuition bills, despite having billions in endowments.

First « 1 2 » Next