I'm not sure I understand. It's not like the Fed would just buy the loans and retire them. People would still be on the hook to pay them off. All that does is let the banks get theirs now instead of having to write a good loan and wait for it.
First, most new loans are made by the federal government. A lot of people that graduated with their last degree a while back remember the FFEL system+ and think that's how it still works, but it doesn't anymore. There's some private loans, but it is a small part of new origination and has been for years. So if any entity would be "getting theirs now" would mostly be the federal government.
Second, loans are principle and interest. Some people are still paying off loans made by the federal government with an interest rate of 8.5% (PLUS graduate loans from 7/1/06–6/30/10). Other loan programs or origination times are lower, but still fairly high.
There's a private market to refinance these high interest rate loans at a lower rate, but it still pretty small and selective. If the Fed were to buy repackaged refinanced loans it would tend to increase demand and capacity by companies to refinance loans and thus decrease the average interest rate paid and the number of loans refinanced.
The same thing has happened (and is still happening) in residential real estate. The Fed isn't forgiving anyone's mortgage or writing any new mortgages, but by buying up enormous amounts of repackaged mortgage debt it is driving private companies to seek out mortgage debt to repackage and thus lowering mortgage rates. That was the entire point of the exercise.
+Under FFEL loans were made by private companies but guaranteed by the federal government. Many of those loans could be refinanced without losing the government guarantee.
Honestly, this doesn't read like a stimulus plan for the economy, but more like a plan to specifically help a demographic that's well-represented on Hacker News.
Mortgages are closely linked to a lot of ongoing economic activity, and homes and home-related activities make up a large part of the economy. I don't think student loans have the same place.
The average student loan debt is about ~29k [1], which is about as much as a good car. Someone with a good job should be able to handle that kind of debt without help.
If the Fed is going to do stimulus, it should focus on stimulus that gets those indebted college grads and people without student debt better jobs, rather than getting those grads a little more spending money in their current crappy jobs.
It would ease debt servicing for existing student debt holders, creating consumer excess (just as lowering rates for mortgages creates a wave of refis, which puts more disposable income in America's consumer pockets).
The key would be for the Fed to restrict its activities to existing student debt, to prevent pushing down rates on new originations.
Student loan rates are set by Congress, and student loan consolidation does not generate a bonus at closing. As a result, there's no direct consumer surpluses to be gained by having a separate owner of student debt. At best, the Fed buying student loans would benefit Sallie Mae/Navient, because the Fed's purchase price would have to be higher than their preferred holding price.
