With the US midterm on the horizon, politicians, including Joe Biden, are targeting younger voters through a recently announced student loan loan-forgiveness scheme that can free up cash for crypto investments.
The new plan follows Senator Elizabeth Warren’s (D-MA) call to the 2020 election when she and Bernie Sanders (I-VT) offered to forgive $1.6 trillion in student loan debt. The plan raised concerns about the debt burden falling on the US government and whether increased disposable income would contribute to economic growth or funnel into non-essential spending such as cryptocurrencies.
While the pandemic took an economic toll, it brought consumer spending habits into sharp focus.
As governments globally scrambled to put together relief packages during the pandemic, many chose to invest their stimulus checks in cryptocurrencies, causing the prices of the two biggest cryptocurrencies, bitcoin and ethereum, to rise to an all-time high in November last year. reached a high level.
Can we expect a similar rally in the crypto markets with a new macro factor entering the fray? let’s watch.
three part plan
On August 24, 2022, the White House released a fact sheet announcing President Joe Biden’s latest midterm drama — a three-part student loan forgiveness plan.
First, under the new plan, the Department of Education will provide up to $20,000 in loan cancellations to recipients of the Pell Grant, a financial aid program. Non-Pell grant recipients can receive up to $10,000. To qualify for relief, the individual’s income must not exceed $125,000 per year or $250,000 per year for married couples. There will also be a pause on student loan repayment till December 31, 2022.
Second, specific low-income individuals would be exempt from payments, and the maximum repayment for graduate loans would be limited to 5% of an individual’s income. These would reduce the annual repayment to $1,400 for a construction worker, $38,000, $44,000 a year for a public school teacher earning $1,700, and $2,800 for a nurse with two children earning $77,000 a year.
Those who have served in the army or government will also be given credit.
Bull Case for Crypto
What does all this mean? Savings from student loan debt are unlikely to present inflationary pressures on the US economy, as the pandemic-era stimulus checks did. The savings would potentially trickle down to disposable cash in vulnerable households, where they could be used to boost the economy through real estate down-payments and new businesses.
But there is a bull case to make for crypto. Debt forgiveness plans to jeopardize constitutionally secured contracts between private parties, setting a precedent that makes them ineffective for future agreements. This can be a tough pill to swallow, especially for traditional financial institutions.
Institutional interest has been growing with Coinbase’s recent partnership with BlackRock, UK investment group Aberdon’s recent purchase of crypto exchange Arcaxe, and the launch of a crypto-linked exchange-traded fund by Charles Schwab.
Hedge-fund billionaire and former White House communications director Anthony Scaramucci said Skybridge Capital, the firm he heads, did not give up any of his positions during the recent crypto market downturn.
Such moves could give confidence to the digital asset sector, reduce perceived risk for retail investors and encourage crypto investment.