Economics and Politics of Student Debt Relief

Paper

Stylianos Papageorgiou
Author: Stylianos Papageorgiou

Nbr. Publication(s): 5
Position: Assistant professor
Affiliation: University of Cyprus
Member of PolEconFin since: 07 Jul 2021

We study student debt relief as the product of probabilistic voting by an electorate that includes both college graduates and non-college laborers. While politicians favor the most homogeneous group in a probabilistic voting setup, we identify conditions under which politicians forgive student debt even when laborers are more homogeneous than graduates. This political asymmetry in favor of student debt relief gives rise to a double equilibrium that is driven by strategic complementarities among a pivotal mass of citizens: When laborers are not sufficiently more homogeneous than graduates, either this pivotal mass banks on student debt relief, thus going to college, and forcing politicians to forgive student debt, or they reject college, thus preempting politicians from forgiving student debt. Income-driven repayments make politicians forgive fewer students’ debt but under a wider range of parameters. We finally identify conditions under which student debt relief and a redistribution in favor of laborers act as strategic complements or substitutes from politicians’ perspective.

Co-Author(s): Oriol Tejada

Link to Paper
PREVIOUS PAPER:

Author: Ana Carolina Garriga

Author: Stylianos Papageorgiou