Economic Impact of Eliminating Student Debt

There has been a lot of talk about eliminating the Student Debt in the United Stats by many of the Presidential Candidates. That rhetoric has increased as the debate over what the Economic Relief Package will be as a result of the fallout and economic shock of the COVID-19 quarantine. this begs the question, what would the impact be if the Congress decided to eliminate the debt?

Analysis:

Assuming the Velocity of Money (the rate at which money is exchanges in the economy) remains constant at 1.458, and American continue to consume (not save) at least 68% of their paychecks, the economy stands to add $192 Billion per year into the economy for years to come and puts on average $355 in the the pockets of 45 Million Americans every month for years to come which will flow into businesses, artisans, and manufacturers. It will add 1.4% growth on top of the growth we normally experience. This opens the door to home ownership for many who are burdened by their student debt and maybe the potential to start business of their own..

But at what cost?

The Cost:

The debt just doesn’t go away into thin air, someone has to pay for it. The financiers who own the debt currently will need to be compensated. The debt would likely be converted into US Treasuries with a lower yield that the rates they are now, causing a credit shock as a result of such action.

Also those treasuries will be added to the already high National Debt which is already a large portion (about 15%) of every Americans Tax Bill.

There is also an emotional impact of the 290 Million Americans who won’t get be directly impacts (everyone will be indirectly impacted) by the cancellation of Student Debt. Resentment of those who ‘have to pay’ for others - especially from those who didn’t attend college and those who already paid off their debt will likely tear the country apart more so than it already is. That may be too much of a cost, no matter the economic boom it would create.