Weekly Market Update August 29, 2022

Earlier this week, President Biden announced a program to forgive some outstanding student loans. There are many details about this program still to be released. Still, the basic idea is to forgive up to $10,000 in student debt, $20,000 for Pell grants, as part of a plan to alleviate the burden of student debt on borrowers with individual incomes of less than $125,000 or married filing jointly borrowers of less than $250,000.

This week's chart shows student debt compared to other consumer debt types (excludes public or government debt). We can see that mortgage debt is the largest type of consumer debt, with student and auto loan debt in the second and third positions. Looking at the numbers, the amount of student loan debt outstanding is around $1.75 trillion, and around 48 million Americans hold student debt. Among the class of 2020, roughly 55% of bachelor's degree recipients took out student loans with an average balance of $28,400.

Sources: Federal Reserve Bank of New York, Lending Tree

Considering the program's limitations, the total cost to forgive this debt is estimated between $300 to $400 billion. Concerns about the inflationary aspect of adding even more debt to our current deficit have been raised. However, quantifying this aspect is difficult as this does not put money into the pockets of borrowers, meaning additional spending will come over time. During the debt relief announcement, President Biden also indicated the moratorium on student loan repayments will end on January 1, 2023, meaning borrowers will soon be making payments that were frozen during the pandemic.

Based on initial analysis, we do not expect this to have a material impact on the economy, inflation, or the capital markets. The bigger issues within those areas continue to be the labor market and the path of interest rates from the Fed. We do expect to see the Federal Reserve continue to raise rates at each of the three remaining meetings this year.?

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