Forgiving Student Loans Will Only Make Things Worse
- By Dominique Dwor-Frecaut
- 4 min read
Summary
- The Biden administration has unveiled debt forgiveness plans representing about 2.5% of GDP over 10 years.
- The forgiveness could raise consumption by 0.5-0.75pp of GDP in 2023 and worsen already exceptional resource pressures.
- Longer run, the forgiveness will likely see high tuition inflation resume and household debt rise.
Market Implications
- Biden’s approval ratings will likely rise before the midterms, but economic impact means the US will require more restrictive monetary policy to lower inflation.
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