Sustainability of Student Debt in a Demand-Led Macrodynamics

This paper analyses the sustainability of student debt in a theoretical model in which economic activity is determined by aggregate effective demand. While most of the literature on this topic considers on its sustainability analysis only the wage differentials among workers with distinct educational levels, we propose a formal methodology that considers the impact of this indebtedness on certain macroeconomic variables that affect the possibility of serving the outstanding debt, such as the rate of employment. We compare two forms of debt repayment, the first being similar to the “Income-Driven Repayment Plans”, which have become common in the U.S. as of late, while, in the second, households’ marginal propensity to consume adapts to some extent to the debt service. Our results indicate that factors such as the distribution of income and marginal propensities to consume of different functional classes affect macroeconomic conditions for the sustainability of student debt