Expectations of student loan forgiveness may encourage borrowing

Although the fate of federal student loan forgiveness is uncertain, students may borrow more in the coming year, partly because of the hope that their debt will be forgiven, a recent study suggests.

With few families able to afford sky-high tuition, students and their parents are increasingly relying on student loans, according to Sallie Mae’s annual report, How America Pays for College. About half of families, or 49%, said they borrowed for college for the 2023-24 academic year, up from 41% the year before. Sallie Mae surveyed 1,000 parents of undergraduates and 1,000 undergraduates ages 18 to 24 this spring.

Education debt, now at over $1.7 trillion, is at a record high. Over the past 15 years, the total amount has more than doubled, outpacing the rise in the cost of higher education.

Nearly half (48%) of student loan borrowers expect to have their loans forgiven after they graduate, Sallie Mae also found. Of those who expect to have their loans forgiven, 37% plan to work in government, while 7% say their future employer will pay their loans. The largest share (47%) believe the government will forgive student loans.

“Borrowing is up, and at the same time, half of students expect their loans to be forgiven,” said Rick Castellano, a spokesman for Sallie Mae. “You have to wonder if there’s a correlation between those two things.”

If loans are expected to be forgiven, that could encourage more borrowing, he said.

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

It’s too early to have a clear sense of how federal student loan forgiveness expectations may affect decisions about college debt, according to Sameer Gadkaree, president of the Institute for College Access and Success, a nonprofit that promotes college affordability.

“Given that debt relief plans have been tied up in court, it’s unclear how this would affect student borrowing,” he said.

“With so much litigation going on, it’s a confusing environment for student loan borrowers,” said Kate Wood, a loan expert at NerdWallet.

Borrowers taking on new debt should consider both major choice and future income potential, experts often advise. Often, a good rule of thumb is to borrow no more than you expect to earn in starting salary.

Most experts also warn against taking out a student loan that you may not be able to repay and hoping it will be forgiven.

For those struggling with existing debt, federal borrowers can reduce their burden through means such as economic hardship and unemployment deferrals, while the income-based student loan repayment plan, known as SAVE, is currently suspended.

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

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