Goldman Sachs has provided the numbers for student loan relief. This is his estimate.

The White House on Wednesday finally released its student loan-debt relief program, saying it will cancel up to $20,000 of debt per borrower in households earning up to $250,000.

Reading: Biden cancels $10,000, $20,000 student loans for Pell grant recipients

Goldman Sachs economists Joseph Briggs and Alec Phillips ran the numbers and came to a conclusion that may trouble both supporters and critics of the plan — that it won’t be much, saying the headlines outweigh the macroeconomic impact.

If all eligible borrowers enrolled in the program, it would reduce student loan balances by about $400 billion, or 1.6% of GDP. That’s not a given — economists point out that previous programs to reduce loan payments have not reached full enrollment.

Economists then drew on data from both the Department of Education and the Federal Reserve’s survey of consumer finances to estimate the boost to income and consumption. Although lower-income households will see the largest proportional cut in debt payments, most of them have no student debt. The rich, on the other hand, are constrained by the income limits attached to the relief. Middle-income households will benefit the most.

What is the impact? Payments will be reduced from 0.4% of personal income to 0.3%. “This modest reduction in debt payments as a share of income implies only a modest boost to GDP. Relative to a counterfactual where debt forgiveness ends and normal debt payments resume, our estimates suggest a 0.1 percent boost to the level of GDP in 2023 with smaller impacts in subsequent years due to the natural maturing of student loans as and continued nominal GDP growth,” they say.

There is also a trade-off – the end of the student loan payment moratorium at the end of the year. “Thus, while the new debt cancellation program will slightly boost consumption, the combined effect of debt cancellation and resumption of payment will be slightly negative,” the Goldman team writes.

On the hot topic of the day, inflation, the Goldman team also doesn’t expect much of a difference. “Debt cancellation that lowers monthly payments is slightly inflationary in isolation, but the resumption of payments is likely to have more than offset this,” they say.

There is another element — a proposal to reduce monthly payments to 5% of income, from the current 10%. “All else being equal, it should reduce the size of many borrowers’ monthly payments when they resume in January, thereby increasing household disposable income while further increasing the federal deficit,” economists say.

When payments resume in January, they are likely to rise by about $35 billion annually, or about $20 billion less than they would have.

It will boost the deficit by about $400 billion over the next two years. But it won’t have a big impact on Treasury issuance as the government has already funded these loans. Even with the possibility that lawmakers may want a bigger program in the future, Goldman analysts point out that there hasn’t been much of a reaction in fixed-income markets. “This suggests that market participants may be treating this as an extraordinary event that does not imply more debt relief (and higher debt levels) in the future,” they said.

Reading: What Student Loan Relief Means for Your Credit Score, Financial Plans, and Tax Bill

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