Question

Can it be argued that a higher that an average rate of inflation will benefit students if they spend the proceeds of their student loans quickly, given that the real value of their repayments will be less due to the changing value of money? Given that higher inflation is normally associated with lower unemployment, would this situation not be the best of all worlds for students as it may help them to get jobs more easily on graduating from university?

Answer 1

If we look at the question of high inflation in isolation it looks like a good idea, since the real value of the (nominal) amount of repayment the students would be making in future will be lower than the value they were able to get when they obtained the loans. Also high inflation may represent full employment meaning that the students are able to get jobs upon graduation. We, however, need to consider the impact of inflation on the price of everything and if the salaries don't grow as fast as the inflation, students (as everyone else) would be left with less purchasing power. Inflation also doesn't necessarily imply full employment, as there could be a state of stagflation meaning that inflation is accompanied by stagnation in economy, which could mean that many students end up unemployed upon graduation.