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Student Loan Cancellation Won’t Stimulate The Economy, According To New Research – Forbes

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Student loan cancellation won’t stimulate the economy, according to new research.

Here’s what you need to know.

Student Loans

Supporters of student loan cancellation say student loan cancellation is a perfect financial stimulus: cancel $50,000 of student loans, and student loan borrowers will have more money to spend on local businesses. Sen. Elizabeth Warren (D-MA) and Senate Majority Leader Chuck Schumer (D-NY) have been vocal supporters of student loan cancellation as a means of financial stimulus. However, according to new research from the Committee for a Reponsible Budget, both total student loan cancellation and partial student loan cancellation will have a minimal effect on the economy. Here’s what they found:

  • Total student loan cancellation: only $0.08 to $0.23 of economic activity for every dollar of student loans cancelled.
  • Partial student loan cancellation: $0.02 to $0.27 of economic activity for every dollar of student loans cancelled.
  • Student loan cancellation of $10,000: results in an economic multiplier of only 0.13x.
  • Student loan cancellation of $50,000: results in an economic multiplier of 0.10x.

This means that if you cancel all student loans, then only 8% to 23% of the amount of student loan debt cancelled would stimulate the economy. If you cancel some student loans, then only 2% to 27% of the amount of student loan debt cancelled would stimulate the economy.

3 Reasons student loan cancellation doesn’t stimulate the economy:

  1. Due to income-driven repayment plans, student loan cancellation has minimal impact on impact cash flow;
  2. Student loan cancellation is poorly targeted to those less likely to spend; and
  3. The current state of the macroeconomy given supply and demand constraints

Here are the details.


Student loan cancellation and stimulus

Here’s how much partial student loan cancellation would impact the economy, according to research:

Student loan cancellation: $10,000

  • completely eliminate student loans for 15 million borrowers
  • partially cancel student loans for 28 million would cost $210 to $280 billion.
  • would reduce annual student loan payments by $18 billion per year (after temporary student loan forbearance ends)
  • even after three years, the savings would be $54 billion, which is about 20% – 25% of the amount of student loans cancelled

Student loan cancellation: $50,000

  • completely eliminate student loans for 36 million borrowers
  • partially cancel student loans for 7 million would cost more than $950 billion.
  • would reduce annual student loan payments by $55 billion per year (after temporary student loan forbearance ends)
  • even after three years, the savings would be $165 billion, which is about 17% of the amount of student loans cancelled

Why student loan cancellation doesn’t really impact cash flow

According to the research, student loan cancellation doesn’t really impact cash flow. Here’s why:

  • $50,000 of student loan cancellation doesn’t mean that a student loan borrower now has $50,000 to spend in the economy.
  • Instead, a student loan borrower would save their student loan payment each month, which could range based on their student loan balance, but could be several hundred dollars (not $50,000).
  • Here’s a surprising statistic: nearly 50% of all student loan dollars are connected to non-repaying borrowers either in school, student loan delinquency, student loan forbearance (separate from the current temporary student loan forbearance ddue to the Covid-19 pandemic), student loan deferment or student loan default.
  • And among those student loan borrowers in student loan repayment, approximately 40% of the dollars come from income-driven repayment plans. Unless their student loan debt is completely or mostly cancelled, these student loan borrowers would continue to make student loan payments each month based on their income.
  • Almost 90% student loan borrowers in an income-driven repayment plan have student loan balances above $10,000, while approximately 40% have student loan balances over $50,000.

Biden has supported financial stimulus, but hasn’t cancelled student loan debt

President Joe Biden has been a proponent of stimulus to help Americans in the response to the Covid-19 pandemic. Through measures such as stimulus checks and enhanced unemployment benefits, Biden has championed providing direct checks to those most in need. The researchers found that “fiscal stimulus is most effective when it goes to those most likely to spend, such as individuals with low incomes or those who recently experienced a loss in income.” However, they argue that student debt cancellation does the exact opposite by distributing money mainly to those most likely to save and least likely to spend. How does student loan cancellation compare to stimulus checks and enhanced unemployment benefits? The researchers estimate savings from a student loan borrower having lower debt repayment will only be about 50% as effective at boosting demand as expanded unemployment benefits and 20% less effective than stimulus checks. “Given high levels of savings, massive stimulus in the pipeline, pent-up demand, supply constraints, inflation pressures, and expectations of a strong economic recovery, additional cash injected into the economy will have few places to go. To the extent that it leads to new spending – as opposed to saving – it is likely to result in additional inflation pressures (especially in the near term).”

As Biden and Congress debate the future of student loan cancellation, the good news is that Biden has cancelled $3 billion of student loans. It’s likely that Biden will continue to pursue targeted student loan cancellation, but there is no guarantee that there will be any wide-scale student loan cancellation. Therefore, make sure you have a clear strategy for student loan repayment. Here are some popular options:


Student Loans: More Reading

Is this a game changer for student loan cancellation?

Are you read to pay student loans again? Elizabeth Warren says your student loan servicer isn’t ready

Biden has now cancelled $40 billion of student loans this way

Biden may extend the student loan relief beyond September 30, 2021, even if unemployment benefits and the eviction moratorium end

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Business

A timeline of events in the bread price-fixing scandal

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Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.

Here’s a timeline of key events in the bread price-fixing case.

Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.

Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.

Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.

Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).

Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.

June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.

Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”

Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.

July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.

Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)

The Canadian Press. All rights reserved.

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Economy

S&P/TSX composite up more than 250 points, U.S. stock markets also higher

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TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.

The S&P/TSX composite index was up 254.62 points at 23,847.22.

In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.

The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.

The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.

The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Construction wraps on indoor supervised site for people who inhale drugs in Vancouver

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VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.

Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.

The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.

“If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.

“Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”

Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.

The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.

The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.

Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.

More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.

Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.

“This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.

Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.

“We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.

Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.

Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.

Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”

“We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.

This report by The Canadian Press was first published Sept. 18, 2024.

The Canadian Press. All rights reserved.

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