What Supreme Court ruling against Biden’s student loan forgiveness plan could mean for the U.S. economy

The Supreme Court struck down the Biden administration’s student loan forgiveness plan Friday.

While the bombshell ruling will undoubtedly be a blow to borrowers who had hoped — perhaps even expected — they’d have up to $20,000 of their student debt erased, the verdict is unlikely to be consequential for the U.S. economy at large, economists said.

“The Supreme Court decision to strike down loan forgiveness should have no meaningful impact on the economy,” said Mark Zandi, chief economist of Moody’s Analytics.

It’s challenging to judge the economic effect of a sweeping policy such as student loan forgiveness.

If it had passed, it might have had a few broad, though marginal, effects on the economy, experts said.

For one, debt relief might have raised the standard of living for millions of households. With debt payments erased, consumers would have had more wiggle room in their budgets and would have pumped more money into the economy, economists said.

Estimates suggest consumers would spend about 3% to 6% of their increased wealth on new or accelerated purchases, according to the Committee for a Responsible Federal Budget.

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That dynamic may have exacerbated inflation, said economists. Put another way, if consumers had more wealth — as much as $20,000 — to spend on goods and services, that may have served to prop up prices.

Overturning student loan forgiveness is therefore somewhat deflationary and means the Federal Reserve may not have to raise borrowing costs as much as it otherwise would if forgiveness succeeded, economists said.

Inflation has fallen significantly to a 4% annual rate from its 9.1% pandemic-era peak but remains elevated above the central bank’s 2% long-term target.

“This will work…