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

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  • Gustavo Pereira Serra

    (Department of Economics, New School for Social Research)

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.

Suggested Citation

  • Gustavo Pereira Serra, 2021. "Household Debt, Student Loan Forgiveness, and Human Capital Investment: a neo-Kaleckian Approach," Working Papers 2112, New School for Social Research, Department of Economics.
    • Handle: RePEc:new:wpaper:2112
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    More about this item

    Keywords

    Household debt; student loans; capacity utilization; human capital;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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