Student loan forgiveness expectations may fuel more borrowing, expert says

• Although student loan debt is already an all-time high, college students are borrowing more for the coming year, according to a recent report.
• Debt cancellation expectations may be factor.

Although the fate of federal student loan forgiveness is up in the air, college students may be borrowing more for the coming year in part because of the expectation that their debt may get forgiven, recent research suggests.

With few families able to shoulder the sky-high tuition tab, students and their parents are increasingly leaning on student loans, according to Sallie Mae's annual How America Pays for College report. Roughly half of families, or 49%, reported borrowing for college for the 2023-24 academic year, up from 41% the year prior. Sallie Mae surveyed 1,000 parents of undergraduate students and 1,000 undergraduate students ages 18 to 24 this spring.

Education debt, which now exceeds $1.7 trillion, is at an all-time high. Over the past 15 years, the total balance has more than doubled, even outpacing the rising cost of college.

Nearly half — 48% — of student loan borrowers anticipate debt forgiveness after they finish college, Sallie Mae also found. Of those who expect forgiveness, 37% plan to work in public service, while 7% say their future employer will pay for their loans. The biggest share, 47%, think the government will forgive student loans.

"Borrowing is up; at the same time, half of students expect their loans to be forgiven," said Rick Castellano, a spokesperson for Sallie Mae. "You have to wonder, is there a correlation there?"

If the expectation is that loans are going to be forgiven, that could encourage more borrowing, he said.

According to a separate report by NerdWallet, 31% of student loan borrowers have slowed their repayments because they hope to see their loans reduced or forgiven by the federal government and 23% have stopped their student loan payments altogether for the same reason. NerdWallet polled more than 600 adults with student loans in July.

It's still too soon to get an accurate read on how expectations of federal student loan forgiveness may filtering down to decisions about education debt, according to Sameer Gadkaree, president of the Institute for College Access and Success, a nonprofit organization that promotes college affordability.

"Given that the debt relief plans have been tied up in courts, it's unclear how that would affect student borrowing," he said.

The status of student loan forgiveness

The Biden administration's efforts on student loan forgiveness have repeatedly been met with legal challenges. The Supreme Court struck down President Joe Biden's first attempt at wide-scale forgiveness last summer.

Now, its new income-driven repayment plan (the Saving on a Valuable Education plan known as SAVE) is suspended as the Biden administration defends its relief program in court.

Another "Plan B" student loan forgiveness effort, which would reduce or eliminate loan debt for a more targeted group of individuals, is expected as soon as October. But Biden's do-over plan for wide-scale debt cancellation is almost certain to face the same legal challenges, experts say.

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The upcoming presidential election could also determine the future of existing student loan forgiveness programs — or whether there is a future for student loan forgiveness at all.

"The path forward on the loans and debt side appears to hinge on what the courts rule," said Gadkaree.

'A confusing climate' for borrowers

"With so much litigation pending, it's a confusing climate for student loan borrowers," said NerdWallet loans expert Kate Wood.

For borrowers taking on new debt, consider both choice of major and future earnings potential, experts often say. Often, a good rule of thumb is not to borrow more than you expect to earn as a starting salary.

Most experts also caution against taking on student loan debt you may not be able to afford in anticipation that it will be wiped out.

For those struggling with existing debt, there are ways federal borrowers can reduce their burden, including economic hardship and unemployment deferments, while the income-based student loan repayment plan, known as SAVE, is currently on hold.

"Those considering repayment options should try to find the best option for them based on what's available now, not on what they think might happen in the future," Wood said.

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