Goldman Sachs ran the numbers for student loan relief.  This is your review.

Goldman Sachs ran the numbers for student loan relief. This is your review.

The White House finally released its student loan debt relief program on Wednesday, saying it will cancel up to $20,000 in debt per borrower for families earning up to $250,000.

To read: Biden canceling $10,000 of student loans, $20,000 for Pell grant recipients

Goldman Sachs economists Joseph Briggs and Alec Phillips analyzed the numbers and came to a perhaps shocking conclusion for both supporters and detractors of the plan — that it won’t be a big deal, saying the headlines are bigger than the macroeconomic impact.

If all eligible borrowers for the program apply, it will reduce student loan balances by about $400 billion, or 1.6% of GDP. That’s not right – economists point out that past programs to reduce loan payments have not achieved full buy-in.

Economists then relied on data from the Department of Education, as well as Federal Reserve research on consumer finance, to estimate the rise in income and consumption. While low-income families see the biggest proportional cut in debt payments, most of them don’t have student debt. The rich, on the other hand, are constrained by the income limits associated with relief. Middle-income families will benefit the most.

What is the impact? Payments will drop from 0.4% of personal income to 0.3%. “This modest reduction in debt payments as a share of income implies only a modest increase in GDP. For a counterfactual where debt tolerance ends and normal debt payments resume, our estimates imply a 0.1 percentage point increase in the GDP level in 2023 with smaller effects in subsequent years due to the natural maturation of student loans as well as continued growth in nominal GDP,” they say.

There is also a trade-off – the end of the break in student loan payments at the end of the year. “Thus, while the new debt forgiveness program will slightly increase consumption, the combined effect of debt forgiveness and repayment will be slightly negative,” the Goldman team writes.

On the hot issue of the day, inflation, the Goldman team doesn’t expect much of a difference either. “Debt forgiveness that lowers monthly payments is a little inflationary on its own, but resuming payments will likely offset that,” they say.

There is another element – a proposal to reduce monthly payments to 5% of income from the current 10%. “All other things being equal, it should reduce the size of monthly payments for many borrowers when they resume in January, thereby increasing household disposable income and further increasing the federal deficit,” economists say.

When payments resume in January, they will likely increase by about $35 billion annually, or about $20 billion less than they would have done.

This will increase the deficit by about $400 billion over the next two years. But it won’t have much impact on Treasury issuance, as the government has already financed these loans. Even with the possibility that lawmakers want a bigger program in the future, Goldman analysts point out that there hasn’t been much reaction in the fixed income markets. “This suggests that market participants may be treating this as a one-time event that does not imply greater debt relief (and higher debt levels) in the future,” they said.

To read: What Student Loan Relief Does This Mean for Your Credit Score, Financial Plans, and Tax Bill

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