LISTEN: Stephanie Kelton on how cancelling student debt would benefit the larger economy


** LISTEN: Stephanie Kelton on how cancelling student debt would benefit the larger economy **

In a new study out of the Levy Economics Institute, The Macroeconomic Effects of Student Debt Cancellation, Scott Fullwiler, Stephanie Kelton, Catherine Ruetschlin, and Marshall Steinbaum examine the macroeconomic impacts of an outright cancellation on all outstanding student debt, public and private.

The report set out to answer a simple question: What if all of the $1.4 trillion in U.S. student debt went away? In this special audio clip from our upcoming episode with Stephanie Kelton on Modern Monetary Theory and budget deficit myths, we ask Professor Kelton to walk us through the findings. Check back for the full episode here and more teasers on @leftoutpodcast in the coming weeks.

** LISTEN: Stephanie Kelton on how cancelling student debt would benefit the larger economy **

From the report's executive summary:

• The policy of debt cancellation could boost real GDP by an average of $86 billion to $108 billion per year. Over the 10-year forecast, the policy generates between $861 billion and $1,083 billion in real GDP (2016 dollars).

• Eliminating student debt reduces the average unemployment rate by 0.22 to 0.36 percentage points over the 10-year forecast.

• Peak job creation in the rst few years following the elimina- tion of student loan debt adds roughly 1.2 million to 1.5 million new jobs per year.

• The inflationary effects of cancelling the debt are macro-economically insigni cant. In the Fair model simulations, additional inflation peaks at about 0.3 percentage points and turns negative in later years. In the Moody’s model, the effect is even smaller, with the pickup in inflation peaking at a trivial 0.09 percentage points.

• Nominal interest rates rise modestly. In the early years, the Federal Reserve raises target rates 0.3 to 0.5 percentage points; in later years, the increase falls to just 0.2 percentage points. The effect on nominal longer-term interest rates peaks at 0.25 to 0.5 percentage points and declines thereafter, settling at 0.21 to 0.35 percentage points.

• The net budgetary effect for the federal government is modest, with a likely increase in the deficit-to-GDP ratio of 0.65 to 0.75 percentage points per year. Depending on the federal government’s budget position overall, the deficit ratio could rise more modestly, ranging between 0.59 and 0.61 percentage points. However, given that the costs of funding the Department of Education’s student loans have already been incurred (discussed in detail in Section 2), the more relevant estimates for the impacts on the government’s budget position relative to current levels are an annual increase in the deficit ratio of between 0.29 and 0.37 percentage points. (This is explained in further detail in Appendix B.)

• State budget deficits as a percentage of GDP improve by about 0.11 percentage points during the entire simulation period.

• Research suggests many other positive spillover effects that are not accounted for in these simulations, including increases in small business formation, degree attainment, and household formation, as well as improved access to credit and reduced household vulnerability to business cycle downturns. Thus, our results provide a conservative estimate of the macro effects of student debt liberation.

Left Out, a podcast produced by Paul Sliker, Michael Palmieri, and Dante Dallavalle, creates in-depth conversations with the most interesting political thinkers, heterodox economists, and organizers on the left. Follow Left Out on Twitter: @leftoutpodcast

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Showing 1 comment

  • commented 2018-02-23 21:42:10 -0500
    Thank you for your sharing. Thanks to this article I can learn more things. Expand your knowledge and abilities. Actually the article is very practical. Thank you!
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