Thread by @LHSummers

Judged purely in terms of economic impacts, the Administration’s decision to extend student loan moratorium is highly problematic.

At a time when unemployment is unusually low and household balance sheets are very strong for all income quintiles, there is no special case for across the board relief now, unlike when it was put in place two years ago.

The Admin understood this when it made clear the last round of temporary debt relief would be the final one & not be extended. How much things have changed since the onset of Covid when it was completely explicit that student loan relief would sunset after the previous extension

The student debt relief is highly regressive as higher income families are more likely to borrow and to borrow more than lower income families. Adults with student  loans have much higher lifetime incomes than those without.

Often relief is indirectly benefitting high interest lenders, like credit card companies, who get paid back with funds saved on account of the moratorium on student debt payments.

Relief also promotes spending in the near term when the economy is clearly supply constrained thereby contrbuting to inflation pressures.

In general, relieving debts for those in distress promptly is good policy. Across the board relief of debts, where the vast majority can pay and are expected to pay, has the perverse effect of rewarding those most who borrow most.

My comments here focus on the economics of student debt relief. Any Administration has to recognize the need for compromise w important constituencies and political imperatives. To the extent these are factors, I can not judge the overall wisdom of the decisions made.

Most of the responses to my observations on student debt relief were ad hominem. Usually ad hominem arguments are made by those who lack substantive ones.

The main substantive issue involves progressivity. Here I think most all serious economists are in agreement that across the board debt reduction is regressive, nearly unanimous for just about the only time in this Chicago Booth poll. igmchicago.org/surveys/studen…

Key point. You need to look at payments not debt burdens since many are already enabled to service at low rates. 

The right place for reform is in student lending to prevent subsidy to institutions that rip students off and to replace loans with grants.

There are vastly better ways to transfer 6 billion dollars a month to help struggling families and to redress racism than this moratorium, where only 10 percent of the benefits go to the bottom 40 percent of families.

brookings.edu/blog/up-front/…