Instead of financing the plan with higher taxes, as proposed by Sanders, the study envisages deficit-spending. The authors calculate that the plan would add about 0.7 percentage points of GDP a year to the shortfall -- though the net impact right now would only be roughly half that, because some costs have already been provisioned for. State and local public finances would benefit, while inflation would edge some 30 basis points higher before subsiding.
Critics point out that the U.S. budget is already diving into the red. And, even if the case for aggregate gains is strong, a charge often leveled against debt writeoffs -- like during the debate about how to help underwater homeowners after the financial crisis -- concerns fairness.
Many analysts say such steps effectively penalize people who are more prudent with their money. A study by the Urban Institute found that education debt is concentrated among the well-off, so forgiving it would be regressive.
The authors of the 2018 paper say it’s the poorer borrowers who would see the biggest reduction in their debt-servicing burden.
More broadly, they argue that it’s better to think of higher education as a public good, contributing to a more dynamic economy -- not a private benefit that only accrues to the individual getting a degree.
That’s the approach taken in many developed countries too. They typically pay for a chunk of higher education out of the public purse. By comparison, the U.S. places more of the burden on households.
Kelton, like Sanders, is a vocal supporter of measures to make the U.S. economy less unequal. But she says objecting to student debt relief on those grounds is a “poor argument.’’
“You just have to make the best policy you can here and now,’’ she said. “You can’t wind the clock back and make it right for everyone.”
This article was provided by Bloomberg News.