A Student Loan Bailout Would Do Almost Nothing For The Economy


Pressure from top Democrats and left-wing pundits is mounting on a presumptive Biden administration to make “canceling” student debt a priority (aka, make taxpayers pay it off). The problems with this policy are endless, from its regressive benefits that skew toward the wealthiest citizens to its creation of a moral hazard problem that would encourage future students to make poor decisions.

But in a fascinating twist, a new analysis shows that even from a progressive economic perspective, student loan cancellation would be an awful economic “stimulus” policy. Left-wing advocates have made their case, in part, based on the notion that canceling student loans would free up money for people and encourage spending, which, under “Keynesian” economic theory, stimulates the economy.

Yet the nonpartisan Committee for a Responsible Federal Budget just threw cold water on this narrative. Their new analysis explicitly shows, using progressive economic assumptions and analysis, that canceling student loans wouldn’t do much to stimulate the economy at all.

Full student debt cancellation would cost taxpayers $1.5 trillion, the group says, but it would only increase cash flow available for spending by $90 billion in 2021.

As the analysis explains, this is “because borrowers often pay back their loans over 10, 15, or even 30 years, debt cancellation will increase their available cash by only a fraction of the total loan forgiveness.”

As a result, even this analysis, friendly to progressive assumptions about the economy, finds that a massive $1.5 trillion debt cancellation initiative would only boost economic output by $115 billion to $360 billion.

It’s also possible, albeit disputed and uncertain, that beneficiaries would be taxed on their student loan relief. If so, these figures would be overestimating the increased tax burden would partially offset the already minimal benefits. Even former Obama economist Jason Furman pointed this out:

So, using this amount of taxpayer money to provide another form of stimulus, such as income tax cuts or payroll tax cuts, would do far more, even under this model, to get the economy going again.

But don’t expect this thorough debunking to halt the liberal push to cancel student debt. It’s never been about facts or reality.

The very notion of a student debt “crisis” itself is overblown in its premise. The average student loan payment is between $200 and $300. That is not a crisis — it is an inconvenience, one that responsible young adults should certainly be able to handle without offloading their debts on to working-class taxpayers.

So they’ve never had the moral high ground. Now, the Left have lost one of their main economic arguments in favor of debt cancellation.

We already knew that it isn’t “progressive” — student loan debt cancellation overwhelmingly benefits the well-off and well educated. And with this new analysis, even liberals must accept that debt cancellation won’t “stimulate the economy.” It barely increases cash flow and gives money to those least likely to spend it.

And it isn’t even in response to a genuine crisis. So, the case for “canceling” student loan debt is incredibly weak. Even if Democratic politicians knew this, they’d still push for cancellation to help young people with undergraduate degrees or higher, a key Democratic voting constituency.

Author: Brad Polumbo

Source: Washington Examiner: A student loan bailout would do almost nothing for the economy