In June, the U.S. Supreme Court killed a plan by President Joe Biden to forgive up to $20,000 in federal student loans for millions of borrowers. Tens of thousands of business school graduates were among those affected.
That was just the start of the bad news for borrowers this summer. Student loan repayment had been suspended eight times since the onset of the coronavirus pandemic during the Trump administration, but the end of the road looms, and President Biden has announced there will be no further postponements. Interest on those loans is set to resume in September, and repayment dates are scheduled to begin again in October.
Now a new survey shows that many borrowers may not be ready for the pain. Intelligent.com found that among nearly 1,000 respondents, three-quarters had been confident they would not have to fully repay their loans — and as a result, nearly half of those spent more freely than they otherwise would have.
(See Poets&Quants‘ reporting on other recent Intelligent.com surveys: Survey: 2 In 3 Class Of 2023 MBAs Say They Have No Job Lined Up and Minorities At The Leading U.S. MBA Programs: 2/3 Of The Top 30 Report Declines.)
BORROWERS SPENT ON HOME & AUTO REPAIRS, VACATIONS & RETAIL PURCHASES
Intelligent.com is a research platform that focuses on information about financial aid, internships, and study strategies at the top degree programs. Its latest survey, conducted between July 6 and 10, garnered responses from 977 borrowers who qualified for Biden’s plan to forgive up to $20,000 in debt.
It found that 75% were “somewhat” or “very” confident that they would receive at least $10,000 in debt relief — and as a result of this confidence, 45% of these borrowers spent more money than they would have in the absence of a forgiveness plan. Among this group, 17% say they spent an additional $5,001 to $7,500, 9% say they spent $7,501 to $10,000, and 5% say they spent more than $10,000.
What did they spend on? The most common answers were retail purchases, other debt repayments, home and auto repairs, rent payments, and vacations.
‘THE DREAM OF A FINANCIAL BREATHER HAS EVAPORATED’
Survey results indicate that 58% of borrowers say they are “very” or “somewhat” unprepared for payments to resume. Conversely, 40% say they are “very or “somewhat” prepared. As for their attitudes toward the Supreme Court’s decision to reject the loan forgiveness program, 77% of borrowers say they “strongly disagree” or “disagree.”
“The Supreme Court decision is a cold shower for those who had their hopes pinned on a $10,000 relief,” says James Allen, a certified financial education instructor, in an Intelligent.com news release. “It’s like waiting for a tax refund only to find out the IRS made a mistake.
“The impact? Well, it’s back to square one, folks. The dream of a financial breather has evaporated.”
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