“The stimulative effect of a total student debt cancellation on the economy will be partially diluted by the relatively high-income levels of the majority of beneficiaries. … Nearly two-thirds of outstanding education debt is held by households in the upper half of the U.S. household income distribution, whose balance sheets are relatively healthy and whose propensity to consume savings from debt relief is lower than for earners on lower rungs of the income distribution.”
And to Buttigieg’s point about for-profit colleges in particular:
“In 2016, 32% of bachelor’s degree recipients from for-profit institutions had debt loads of $50,000 or more, compared to just 7% and 12% of peers at 4-year public and private nonprofit institutions, respectively. Although for-profit institutions educate less than 10% of U.S. undergraduates and graduates, their students represent nearly one-third of delinquent federal loan borrowers and are twice as likely to have delinquent loans than their counterparts at public and private nonprofit peer institutions.”
I’m not in the business of opining on policy proposals. As Moody’s notes, the issues around the “moral hazard” of loan forgiveness are real and deserve to be debated publicly among elected officials.
But from my vantage point within financial markets, the concept of student-loan forgiveness as a sort of tax cut is intriguing. Much of the talk among investors lately has centered on the limits of monetary policy and how governments are going to have to step up and do more to keep the economic expansion alive — or to combat the next downturn. I’ve written before that ultra-low bond yields are a sign that markets are begging for infrastructure spending, an oft-cited way to provide a fiscal jolt.
Giving today’s young adults the chance to buy homes and start businesses sooner — like previous generations, before college costs exploded — might be an equally effective boost. After all, what good are interest rates at near-record lows to people who don’t take out mortgages or small-business loans? Morgan Stanley, for one, is counting on unshackled millennials and Generation Z to carry the U.S. economy and stock market for years to come.
It’s starting to look as if a “tax cut 2.0” will be on the ballot in 2020. While that’s the language of the Republican Party, the Moody’s analysis is a reminder that there’s more than one way to reduce what some Americans owe the government and boost the U.S. economy in the process.
Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.