The prospect of student loan forgiveness led about a third of eligible borrowers to spend more than they otherwise would have, according to new survey results — and that extra spending is now adding to the financial stress they’re facing with the impending restart of payments.
Before the U.S. Supreme Court struck down the Biden administration’s plan to cancel up to $20,000 of student debt per person last month, some borrowers had spent months banking on relief and budgeting accordingly. Poll data released Thursday by Intelligent.com, a college degree ranking website, found that 34% of borrowers who qualified for forgiveness say they spent more money on things like rent and paying off other debts based on the expectation they would get at least a portion of their student loan debt canceled.
For now, at least, those dreams are dashed.
What the research says
About 30% of the borrowers who spent more money because of their confidence in Biden's forgiveness plan said the additional amount they spent was $5,000 or more.
- The most popular way borrowers spent extra money was purchasing retail items. Other common uses included paying off debts and completing home or auto repairs.
- The survey also found that some borrowers spent money on “unnecessary” expenses, including gambling, alcohol and vacations.
After a pandemic-induced moratorium, student loan payments are set to resume in October. Some 58% of the nearly 1,000 respondents to the Intelligent.com survey say they are unprepared for that to happen.
More than a quarter say they are now likely or somewhat likely to not pay back $10,000 of their student loan debt — the amount of relief that many borrowers were expecting through loan forgiveness.
When the Biden administration announced its plan last year, scores of borrowers made spending decisions assuming they had loan forgiveness coming their way. As legal challenges made their way through the courts, borrowers' confidence that loan forgiveness would actually happen dwindled, but even the Supreme Court case didn't totally stop borrowers from spending more money than they otherwise would have.
Now that original loan forgiveness plan is dead and interest on federal student loans will begin accruing again in September for the first time in more than three years, some may be regretting those decisions.
But not all hope is lost.
There's another potential path to loan forgiveness through the Higher Education Act that administration officials are exploring, but experts say there would surely be new legal challenges. The Education Department also announced last week that more than 800,000 borrowers will soon get loan forgiveness as a result of an effort to correct issues related to federal income-driven repayment plans.
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