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- New research suggests that the Biden White House’s lofty expectations for its student loan forgiveness efforts contributed to millions of student loan borrowers making financial decisions that would later cost them.
- Amid optimism about forgiveness, many Americans paid less on their loans, or didn’t pay at all; pushed student debt payments out into the future; and spent more on consumer purchases that were not essentials.
- The study is a warning that major policy shifts between presidential administrations should be a reason for concern from a personal finance perspective, and consumers should not view any policy plan as a sure thing, one of the authors tells CNBC.
US President Joe Biden speaks during an event in Madison, Wisconsin, US, on Monday, April 8, 2024. Daniel Steinle | Bloomberg | Getty Images
When then-President Joe Biden announced his first federal student loan forgiveness plan in August 2022, he predicted that it would lift tens of millions of Americans out of longstanding debt. A new study suggests that the promises associated with the thwarted plan contributed to an opposite effect: adding to Americans’ financial distress.
“It’s a game changer,” Biden said at a White House press conference announcing the plan in August 2022. “People can start climbing out from under [their] mountain[s] of debt, to get on top of their rent and their utilities, to finally think about buying a home or starting a family or starting a business.”
But by linking surveyed consumer expectations around student loan forgiveness to consumption data and credit reports over the course of roughly five years, the study shows that borrowers who expected to receive student loan forgiveness ultimately made financial decisions that came at an added cost.
Those who believed they were more likely to receive some level of forgiveness under Biden’s efforts were 30% less likely to make monthly student loan payments and spent, on average, $100 less per month paying back those loans, according to the recent NBER working paper authored by University of Chicago professor Dmitri K. Koustas, Purdue University professor Michael Weber, and University of Cambridge professor Constantine Yannelis.
The Biden administration’s student loan forgiveness programs faced a shaky timeline, characterized by persistent legal roadblocks, which culminated in a 2023 Supreme Court defeat. During this period, qualifying borrowers leaned heavily on the assurances of public officials, and coverage of those statements in the press, in order to assess what might happen to their tens of thousands of dollars in student loan debt.
As of May 2025, optimistic borrowers were 7.5% more likely to be 90 days past due on their monthly loan payments, according to the study. They were also significantly more likely to push payment off in hopes of impending relief and easing their future burden. For example, picking a 20-year repayment plan rather than a 10-year repayment term in order to minimize incremental payments with the expectation of forgiveness down the line — pay less now to save more later — ended up being a miscalculation that led to losses of up to 6.88% of the loan’s total value, the study found.
To be sure, the Biden administration had reason to pursue its student loan relief efforts, with research showing that increasingly high rates of student debt put goals such as home ownership out of reach for many Americans. If successful, the former president’s initiatives would have made for the largest federal education debt relief in U.S. history. Even with its failures, the Biden administration waived over $180 billion in student loans, the most by any presidential administration.
However, Yannelis claims that, in retrospect, borrowers may have been better off had they ignored the political assurances entirely.
“I think the main takeaway that we have here is that these politicians’ promises can have real negative impacts for many borrowers,” he said. “Because people have beliefs that turned out to be false, they were making plans based on incorrect information. They weren’t optimally repaying their loans, and they weren’t optimally making financial plans,” he said. “And that actually has real welfare consequences.”
‘Wait a minute, I thought my loans were gone.’
Consumer expectations were in a constant state of whiplash during the Biden administration’s loan forgiveness efforts, but the optimism began earlier. The 2020 Democratic presidential primaries, in which every major candidate proposed some variation of a student loan forgiveness program, generated widespread public attention around the issue. During this time, coverage of what student loans would entail and how they might play out under a Democratic administration picked up, providing an initial boost in borrower optimism.
Biden’s announcement in August 2022 increased optimism around student loan debt forgiveness among borrowers by approximately 22%, according to the study. News headlines about loan forgiveness efforts, which were increasingly common prior to the first court action to block the plans in October 2022, increased borrower optimism by another 4% on average. This sense of optimism fluctuated significantly until June 2023, when the Supreme Court’s decision to strike down Biden’s first attempt at relieving student loan debt sent public opinion into a tailspin. Reversal in public sentiment was further compounded by President Trump’s 2024 election win.
But consumer expectations weren’t just built on headlines or video clips. By November 14, 2022, around 16 million Americans had already been approved for federal student loan assistance. To make matters worse, the Department of Education sent emails to nine million people notifying them of approvals even as the plan was blocked. Nearly 1 out of every 20 Americans could have reasonably expected tens of thousands of dollars in relief and shaped their spending habits accordingly.
“I’m often seeing a group of borrowers that may have received a letter saying that some of [their] loans would be forgiven, and now all of a sudden they’re getting a bill, or they might even be in default,” said Betsy Mayotte, president of The Institute of Student Loan Advisors (TISLA). “So they’re like, ‘Wait a minute, I thought my loans were gone.’”
During this period, borrowers were also less likely to spend on long-term “durable” purchases, such as housing, automobiles, and appliances, with the study finding a shift away from durable spending and towards more immediate, non-durable purchases.
Delaying major purchases turned out to be a mistake during a period of high inflation, one that produced much higher price tags by the time uncertainty around student loans was mitigated. From the first student loan payment pause during the Covid-19 pandemic in March 2020 through March 2025, the average price of a house in the United States increased by over 34%, from $383,000 to $514,000. Over the same time period, the price of a new automobile increased by over 20%.
Mayotte says the financial pain will be ongoing for many consumers who had built personal budget forecasts around a much lower student loan repayment amount. Things may only worsen as the SAVE plan — Biden’s last attempt to regulate and subsidize monthly loan payments for low-and-middle-income individuals — has been phased out entirely as of July 1.
“What I’m seeing more frequently is borrowers that made other financial decisions based on the budget they thought they’d have based on their payment under the SAVE plan,” Mayotte said. “Now that SAVE is gone, their next lowest payment is going to be a lot more … and they can’t afford [their current means]. Now, the same people who are getting hit with these higher payment amounts are also getting hit with higher healthcare premiums, higher gas prices … I keep calling it a perfect storm for significantly increased expenses,” she said.
Yannelis says the picture might not get any clearer for borrowers within the next few years.
Indeed, the student loan forgiveness outlook continues to shift, with courts this week blocking a Trump administration effort to change eligibility for Public Service Loan Forgiveness.
“We’re in a period of American history where there’s historically high polarization … the highest level since the Civil War,” Yannelis said. He says the study is a warning that major policy shifts between presidential administrations should be a reason for concern from a personal finance perspective, and consumers should not view any policy plan as a sure thing. “Different parties might do very different things in terms of student loan policy … things that may [again] be blocked by court[s]. So, unfortunately, there’s still a tremendous amount of uncertainty, which creates real harm for consumers,” he said.
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