Yahoo Finance Live anchors review former Secretary of Treasury Larry Summers' comments on student debt forgiveness' connection to rising inflation, proposing student loans can be forgiven through bankruptcy processes.

Video Transcript

- Well, speaking of the increasing cost of college, the student debt debate is heating up again, with President Biden expected to make that announcement tomorrow regarding his plan for addressing the current outstanding student debt. Now, former Treasury Secretary Larry Summers has been tweeting about the matter.

Now, today, he added that he believes the best way to relieve student debt would, quote, "be to allow it to be discharged in bankruptcy." I support this reform. It would also penalize other private creditors, unlike government debt relief that would in part subsidize them. So, Dave, what do you make of this then? And what do you think that would do for people if they could discharge it? Is this a sort of maybe good middle ground for people who didn't like the idea of forgiving student loan debt?

- Yeah. Look, I think it is. And Larry Summers, the former Treasury Secretary, has been right an awful lot of the time when it comes to inflation, when it comes to the language coming from the Fed. Most of his predictions have come true. In fact, CNBC put out a survey asking about this. 59% agreed with them that loan forgiveness does add to inflation. And it's pretty hard to escape that reality that it would certainly make our inflationary environment worse.

And you can't help but ignore the politics of this, as I mentioned with Lynn, that they are expected to punt on the freeze to make these payments until just after the midterm elections, which suggest the administration has every bit of clue about how this is going to go down, knowing they shouldn't do it, but feeling the pressure from their far left because he made that campaign promise. I think Larry Summers is spot on here.

- I think he is. I mean, it's hard to argue. Like you're saying, he has been spot on. When it comes to inflation, certainly was raising some red flags many, many months before the Biden administration started to take it seriously and really started to try at least maybe to address inflation. The bankruptcy angle is pretty interesting because, obviously, if you did decide to file for bankruptcy, that clearly would affect your credit report. You potentially get some of your loans forgiven.

And you can make the argument that they are forgiving loans for people who really, really need the help. If people are filing for bankruptcy, those are the people that are really struggling to make those payments. And then, of course, the court would order potentially what your payments should be.

It's an interesting case. It's what from my understanding is something that I think makes sense at this time, certainly, when you do take into account the survey that you mentioned, also Summers. And he is by far not the only economist that's out there warning that inflation, if we do in fact forgive student debt, that that of course would potentially add to inflation. So something that I think we should keep in mind here.

- Summers also wants a much more stark message from the Fed on Friday about the pain to come and the unemployment. So we shall see if that one comes true.