Surprise: Student Debt Relief Will Mostly Help Middle- And Upper-Income Households

Now that the air is heavy with talk of debt forgiveness, initially starting with the government's $1.6 trillion student loan portfolio before Democrats move to a broad debt jubilee much to the chagrin of all those Americans who responsibly have paid their obligations every month, investment banks have started analyzing the impact of the various student loan forgiveness proposals. 

One such analysis comes from Goldman's economics team which, in what will likely come as a disappointment for progressives, has calculated that even substantial debt relief "would only have a small effect on GDP", specifically, forgiving federal student loans up to $10k would add less than 0.1% to the level of GDP starting in 2021, and cumulatively add only $0.43 in real GDP for each $1 of forgiven debt over the next 10 years. A more generous debt relief program that forgives federal loan balances up to $50k would provide a slightly bigger boost to GDP, but would have a smaller per-dollar impact.

Meanwhile, forgiving federal student loans up to $10k would likely cost around $300 billion (1.6% of GDP), while forgiving loans up to $50k would cost around $800 billion (4.1% ofGDP). However, since these loans have already been funded through prior Treasury issuance, the impact on Treasury financing would be spread out over many years due to the lack of interest and principal payments. If loans were forgiven immediately, Treasury’s financing needs might actually decline, as tax payments on the forgiven amounts would likely more than offset the lack of scheduled loan payments.

Taking a step back, loan forgiveness provisions have made it into the initial version of the HEROES Act—the House Democrats' $3.4 trillion COVID-relief proposal that the Senate never passed—though none of the leading stimulus proposals in front of Congress at the moment deal with the issue. In light of the seemingly dim prospects for near-term legislative approval, several Democrats, including Senate Majority Leader Chuck Schumer (D-N.Y.) and Senator Elizabeth Warren (D-Mass.), have instead shifted their sights to executive action. The chart below summarizes several of the recent proposals.

1 2 3 4
View single page >> |

Disclaimer: Copyright ©2009-2020 ZeroHedge.com/ABC Media, LTD; All Rights Reserved. Zero Hedge is intended for Mature Audiences. Familiarize yourself with our legal and use policies every time ...

more
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.