Prominent Democrats continue to urge a skeptical President Biden to cancel $50,000 in federally held student loan debt via executive action (as opposed to legislation passed by Congress).

In an interview with Yahoo Finance, Senator Elizabeth Warren (D-MA) explained why she and others believe that cancellation would have a stimulus-like effect on the U.S. economy.

"It’s going to be a huge, huge boost to our economy," Warren, who chairs the Subcommittee on Economic Policy at the Senate Committee on Banking, Housing, and Urban Affairs, told Yahoo Finance Presents (video above). "Good for the individual borrowers. Good for closing the racial wealth gap. Good for the economy overall."

Warren noted that when the payment pause on student loans ends in October, "families all across this country are all of a sudden going to be hit with payments — the average payment is going to be just around $400. Now for some families, they’re simply not going to be able to pay it. And that’s just going to throw that family over a financial cliff."

Student loan payments, Warren argued, would be going "into the federal government instead of getting spent in your local community, instead of getting spent at restaurants and retail stores, instead of being spent on back-to-school expenses in September. We need that money moving through the economy."

Goldman Sachs analysts disagreed in a December 2020 note, stating that they had "several reasons to be skeptical that forgiving student debt would provide a large boost to consumption."

The analysts argued that most student loans were being held by households "that have high earnings potential and are less likely to be resource constrained" and that the tax implications of forgiveness could hold back any boost to consumption. (The stimulus bill passed in March included a provision, backed by Warren and Senator Bob Menendez (D-NJ), that made student loan forgiveness tax-free until 2026.)

There are nearly 45 million borrowers holding more than $1.56 trillion in federal and federally-backed student loans, according to recent data from the Department of Education (ED). Out of the 36 million student loan borrowers who would benefit from $50,000 in cancellation, 9.4 million — a little more than a quarter — are currently in default.

Cancelling $50,000 in student loan debt is a proposal Warren and Senate Majority Leader Chuck Schumer (D-NY) have pushed since before the 2020 presidential election and continue to press the Biden administration to take executive action on.

“The Biden administration is still today very much open to what we are doing — no one question about it,” Schumer, speaking about student debt forgiveness, told a town hall organized by Student Debt Crisis and other groups on Thursday. "And in fact, Senator Warren and I ... and a few others are planning with the president again shortly to reiterate our claim — this is still going, and going strong.”

White House Chief of Staff Ron Klain recently told Politico that the president asked Education Secretary Miguel Cardona to "prepare a memo on the president's legal authority" before any decision.

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Aarthi is a reporter for Yahoo Finance. She can be reached at [email protected]. Follow her on Twitter @aarthiswami.

Read more:

• Senator Elizabeth Warren breaks down America's 'broken student loan system'

• Student loan forgiveness: New Education Department data highlights benefits of cancellation

• Warren and Schumer urge student debt cancellation of up to $50,000 for all federal borrowers

• Read the latest financial and business news from Yahoo Finance

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