Wall Street private investment firm Goldman Sachs believes that canceling roughly $400 billion in student loan debts will have a relatively negligible impact on inflation.
According to White House Chief of Staff Ronald Klain, Goldman Sachs says that “Middle income households will receive the biggest … boost from the plan…,” and “debt forgiveness itself should have only a minor effect on the cash deficit.”
Goldman Sachs today, on @POTUS' student debt decision:
– “Middle income households will receive the biggest … boost from the plan…"
– "debt forgiveness itself should have only a minor effect on the cash deficit"
— Ronald Klain (@WHCOS) August 25, 2022
With over $2.5 trillion in assets under management and annual revenue of $59.3 billion (2021), Goldman Sachs is a highly respected investment firm that requires investors have a minimum of $10 million in assets to become a client – not exactly a company that one would call far left, socialist or radically liberal, a factor that gives its input even greater weight.
Alec Phillips, the Chief Political Economist for Goldman Sachs research, and Goldman Sachs economist Joseph Briggs estimate the debt forgiveness program will reduce debt payments from 0.4%-0.3%, according to Financial Times.
“The program looks likely to discharge around $400bn (1.6% of GDP) in student loan balances. We estimate that the debt forgiveness program would reduce student debt payments from roughly 0.4% to 0.3% of personal income, with middle-income households disproportionately benefiting from the reduction in debt payments. The aggregate effects from such an income boost would be small, however, with the level of GDP increasing by about 0.1% in 2023 with smaller effects in subsequent years. We would expect the effects on inflation to be similarly small.”
The New York Times contributor Paul Krugman agrees with the private equity firm.
Maybe you don't believe me when I say that the math doesn't support claims that debt relief is inflationary. But the socialists at, um, Goldman Sachs reach the same conclusion 1/ https://t.co/WCJEVbl05d
— Paul Krugman (@paulkrugman) August 25, 2022
The minimum $10,000 per borrower debt relief – up to $20,000 for recipients of Pell Grants – will be offset by the end of the student loan payment pause on December 31, 2022.
When payments resume in January of 2023, borrowers on income-driven repayment plans will see a 5% cap on monthly payments relative to discretionary income. The current program caps monthly payments at 10% of discretionary income, meaning borrowers will see immediate relief in their household take-home pay.
Public fears that erasing the crippling debt of current and former students will add to inflationary conditions have been debunked by economists and financial analysts including Goldman Sachs.
When one of the top Wall Street firms with trillions in managed assets confirms that there’s no fire behind the inflation talk smoke – it’s best to listen to the experts.
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