Author(s) :

Agastya Mohanty.

Volume/Issue :

Abstract :

This paper examines the effect of U.S. student loan debt on household consumption, evaluating whether policy interventions such as forgiveness programs mitigate these effects. The paper uses a state-level panel regression to analyze the impact of student loan debt on consumer spending. The paper finds that student loan debt significantly constrains consumption, showing consistency with liquidity constraint and debt overhang mechanisms. The paper also finds that loan forgiveness programs increase consumer spending directly and indirectly, by partially offsetting the negative effect of debt. The paper concludes that the effectiveness of these policies depends significantly on design, with targeted efforts at relief proving to be more efficient than broad-based approaches.