Are Student-Loan Borrowers Gaming the System on Loan Forgiveness?

With the White House inching closer to a deal to forgive student loans, some borrowers are staying one step ahead of the game — but at great risk.

President Joe Biden is a big fan of federal-student-loan forgiveness. He campaigned for the presidency on the promise and his administration appears ready to roll out a loan-forgiveness program this summer.

According to a study by Intelligent LLC, the Biden administration is set to forgive as much as $10,000 in federal student loans per borrower. The announcement of the new policy appears imminent.

Simultaneously, student-loan borrowers are following the issue closely, with many of them banking on the president’s promise by taking out more student loans since he took office.

Intelligent took a close look at the number of collegians who have taken out federal student loans since January 2021. 

What they found was surprising: 86% of 1,000 students surveyed said they recently took out a student loan based largely on the president’s pledge to forgive student loans.

More Findings: 

Additionally, the study found that . . .

Close to 1 in 3 say they are unlikely to continue school if Biden does not follow through with his pledgeThe majority remain confident that the president will forgive at least some student-loan debtNearly 1 in 3 borrowers who identify with the Democratic Party are unlikely to vote for Biden in the next election unless they receive some loan forgiveness70% say they are confident (35%) or somewhat confident (35%) that he will forgive $10,000 in student debt per borrower. An overwhelming 90% majority say that would be very helpful (60%) or somewhat helpful (30%) to them personally.71% are very confident (30%) or somewhat confident (41%) that Biden will go beyond his initial campaign promises and forgive most or all federal student loan debt.

Playing With Fire?

With no formal announcement yet, money experts wonder whether borrowers are taking a risk by taking out loans based on a politician’s campaign pledge.

“Borrowers who took out student loans because they believed the debt would get forgiven took a gamble,” said Leslie Tayne, founder of Tayne Law Group in New York.

“Student loan forgiveness isn’t guaranteed until it’s signed into law or decreed through executive order — and even then, we can expect lengthy legal challenges.”

Who qualifies for student loan forgiveness is another risk-laden proposition for recent loan borrowers.

“I would assume that a large portion of these folks would have gone to school and borrowed loans regardless of loan cancellation to further their education,” said Meagan Landress, consultant at Student Loan Planner and a certified student loan professional. 

“But this cancellation would likely be for those who had already borrowed and graduated, so if one borrowed money for the sole purpose/expectation of loan cancellation, that was a bad decision because it may not apply to you.”

Why Should Colleges Be Off the Hook?

One question making the rounds on social media, on backyard patios, and in diners and bars across the U.S. is whether or not student-loan forgiveness is fair to Americans who’ve never taken out a student loan.

It’s complicated, money experts say.

“Student-debt forgiveness is fair, despite not every American having that burden,” Tayne said. “Many have described the student-loan landscape as predatory for several years, leaving many borrowers with debt they could never pay off on their own.”

Even so, merely forgiving the debt doesn’t solve the problem long term. “What would be fair is the Biden administration passing legislation that regulates the cost of higher education and reduces the number of interest borrowers will have to pay,” Tayne noted.

Landress agrees with that sentiment.

“It’s a complex question that one can argue either way,” she said. “Is it fair to those without student loans or those who have already paid them off? No, it’s not. But could it be life-changing for a lower-income person who didn’t graduate and is struggling to make ends meet? Yes, it could.”

The bigger question is what’s being done to fix the front end of the student loan, where colleges and universities routinely charge tuition costs that historically are rising way ahead of inflation.

“Student loans are a symptom of bigger issues,” Landress added. “Student-loan cancellation is a small Band-Aid to a system that’s bleeding out.”

Related Posts

Union Capital Financial Group Ltd, registered in the British Virgin Islands, does not provide investment services inside the United States. The company only provides consulting, advisory and educational services.