Household Debt, Student Loan Forgiveness, and Human Capital Investment: a neo-Kaleckian Approach

Gustavo Pereira Serra

No 2112, Working Papers from New School for Social Research, Department of Economics

Abstract: This paper aims to analyze the sustainability of student debt in the US. For this purpose, I build a neo-Kaleckian model in which households can borrow to either consume or invest in human capital. Next, I calibrate the model using US data to simulate the economic effects of specific policies such as student loan forgiveness. To my knowledge, this is the first study that considers household borrowing for two different purposes, consumption and human capital accumulation, in a demand-led macro-modeling framework. The main findings are that i) household debt is sustainable in the long run (i.e., the debt servicing is compatible with the long-term economic growth) for a consumption level greater than 90% of household income; ii) new borrowing boosts short-term economic activity while having ambiguous long-term effects because of its outcomes to household indebtedness and debt servicing; and iii) student loan cancellation has only short-run economic effects, whereas reducing loan interest rates and changing the eligibility criterion for student loan forgiveness result in long-term effects.

Keywords: Household debt; student loans; capacity utilization; human capital (search for similar items in EconPapers)
JEL-codes: E12 E22 E24 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2021-08
New Economics Papers: this item is included in nep-isf, nep-knm, nep-mac and nep-pke
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http://www.economicpolicyresearch.org/econ/2021/NSSR_WP_122021.pdf First version, 2021 (application/pdf)

Related works:
Journal Article: Household debt, student loan forgiveness, and human capital investment: a neo-Kaleckian approach (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:new:wpaper:2112

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