FILE PHOTO - Harvard University holds its 371st Commencement Exercises in Cambridge
FILE PHOTO - Graduating students stand during Harvard University's 371st Commencement Exercises in Cambridge, Massachusetts, U.S., May 26, 2022.

U.S. President Joe Biden will announce Wednesday that the government will forgive $10,000 in student loans for many of the country's debt-saddled college-goers, sources say, a move that could boost support for Democrats in midterm elections, but may increase inflation as well.

Canceling the debt will free up hundreds of billions of dollars for new consumer spending, adding a new wrinkle to the country's inflation fight, economists say.

Democrats have pushed for Biden to forgive as much as $50,000 per borrower, arguing that the debt makes it impossible for younger Americans to save for home down payments or other big consumer purchases. Republicans argue the move will disproportionately help people earning higher incomes.

U.S. consumers carry a massive $1.75 trillion in student loan debt, most of it held by the federal government, the result of private and state-backed university tuition fees that are substantially higher than in most other rich countries.

The administration will extend its pause on student loan repayment through to the end of the year, while also announcing plans to forgive as much as $10,000 in student debt for borrowers whose income falls below $125,000 a year.

It will also cancel up to $20,000 in debt for Pell Grant recipients, some 6 million students from low-income families.

Cutting $10,000 in federal debt for every student would amount to $321 billion of federal student loans and eliminate the entire balance for 11.8 million borrowers, or 31% of them, a New York Federal Reserve study shows.

A pandemic-linked government pause in student loan interest and payments is due to expire at the end of August. Borrower balances have been frozen since the beginning of the COVID-19 outbreak, with no payments required on most federal student loans since March 2020.

U.S. President Joe Biden signs "The Inflation Reduction Act of 2022" into law at the White House in Washington
U.S. President Joe Biden pauses as he speaks during a signing ceremony for "The Inflation Reduction Act of 2022" in the State Dining Room of the White House in Washington, U.S. August 16, 2022.