Date of Award
Open Access Dissertation
School of Social Science, Politics, and Evaluation
Thomas J. Kniesner
Dissertation or Thesis Committee Member
Dissertation or Thesis Committee Member
This work is licensed under a Creative Commons Attribution-Noncommercial 4.0 License
© 2023 Emelia Akhlaghi
Simulation, Political leadership, Biden administration, Unemployment, Macroeconomic variables
Economics | Education
Nearly 45 million Americans are trapped in a student loan debt. In total they owe more than $1.75 trillion. Research shows that such a high amount of debt harms the U.S. economy in several ways, preventing anything from small business development to new house purchases, and even weddings and procreation. It is an issue that stakeholders have tried to address by offering different relief measures ranging from re-financing to debt cancellation. Debt cancellation has remained high on the agenda of the Democrat political leadership. This is the reason that student loan debt cancellation was on the agenda of each democrat primary candidate during 2020 presidential primaries. An important justification while propagating student loan debt cancellation has been that it will boost the U.S. economy apart from other likely benefits. Despite the policy of student loan debt cancellation being announced by the Biden Administration, the three branches of the government are not on the same page regarding its implementation. While the Congress passed a bill in early June 2023 attempting to block its implementation, the Supreme Court on June 30, 2023, ruled against the implementation of the loan debt cancellation policy of the Biden administration (Department of Education et al. v . Brown et al., 2023; Biden v . Nebraska, 2023). Even though the debt cancellation policy has been facing a tug of war between the three branches of our government, yet the policy remains to be proposed as one of the most important solutions to the student loan debt problem because it will be improving U.S. economy. There is, however, limited research on measurement of impact of loan cancellation policy on the U.S. economy. One such effort was undertaken by Fullwiler et.al (2018). They created a simulation to measure the impact of complete loan forgiveness on the U.S. economy. However, there is no research which tests the validity of these impacts, as to whether such impacts are attributable to the implementation of student loan debt cancellation policy. This research extends the work of Fullwiler et al. (2018) by undertaking a sensitivity analysis of different policy options under consideration/being propagated, by measuring their respective impact on the key macro-economic variables of the U.S. economy. This study then further extends to testing these impacts on the key macro-economic variables for their statistical significance to show whether the implementation of policy is indeed responsible for the impact. The study tests for statistical significance to rule out possibility of impact by other confounding variables or biases impacting such a change in the economic output. The purpose of this study was to test different policy options to provide plausible policy options for loan cancellation in case the Congress wants to act upon the loan cancellation policy in future, by showcasing the macroeconomic impacts of the respective policy options on the U.S. economy by 2030 and testing their statistical significance using Difference – in – Differences method. The study found that different policy options of cancellation of the loan will yield differential aspects on GDP, Unemployment, and Inflation rate. The study found that none of policy options had statistically significant impact on unemployment numbers and rate of inflation. Three out of the four policy options tested in this study were found to have statistically significant impact on the Real GDP, whereas policy option 2, that is, the Biden administration’s loan forgiveness policy did not show a statistically significant impact. This study found that the argument of student loan cancellation policy U.S. economy may not hold good in terms of aggregated macroeconomic variables of Unemployment and Inflation and may only be effective for the aggregated macroeconomic variable of Real GDP only for three out of the four policy options that were tested. One of the most important finding relevant to the current debates of loan forgiveness in the political environment of U.S. is that the student loan forgiveness policy of Biden administration may have no impact on the U.S. economy in terms of all the three aggregated macroeconomic variables being analyzed in this study.
Akhlaghi, Emelia. (2023). Opportunity Cost of Student Loan Debt Forgiveness: Testing the Impact of Four Policy Options on United States’ Economy. CGU Theses & Dissertations, 573. https://scholarship.claremont.edu/cgu_etd/573.