How Biden era student loan promises made debt worse for many Americans

When then-President Joe Biden announced the first federal student loan forgiveness plan in August 2022, he predicted it would relieve tens of millions of Americans from their long-standing debts. A new study suggests that promises about the thwarted plan had the opposite effect — increasing Americans’ financial distress.

“This is a game-changer,” Biden said at the White House press conference announcing the plan in August 2022. “People can start climbing up from the bottom [their] mountain[s] “Getting on top of your debts, paying your rent and bills, thinking about eventually buying a home, starting a family, or starting a business.”

But the study, which linked surveyed consumer expectations regarding student loan forgiveness to nearly five years of consumption data and credit reports, shows that borrowers waiting to receive student loan forgiveness ultimately make financial decisions that come with an additional cost.

Those who believed they were more likely to receive some forgiveness as a result of Biden’s efforts were 30% less likely to make monthly student loan payments and spent an average of $100 less per month paying back those loans, according to the latest data. NBER working paper It was written by University of Chicago professor Dmitri K. Koustas, Purdue University professor Michael Weber, and Cambridge University professor Constantine Yannelis.

The Biden administration’s student loan forgiveness programs have faced a shaky timeline characterized by persistent legal hurdles that culminate in a Supreme Court defeat in 2023. During this period, borrowers relied heavily on assurances from public officials and press coverage of these statements to assess what might happen to their tens of thousands of dollars of 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 delay payment in the hope of relief in the near future and a lighter future burden. For example, choosing a 20-year repayment plan instead of a 10-year repayment period to minimize increased payments in anticipation of later forgiveness (pay less now to save more later) turned out to be a miscalculation that led to losses of up to 6.88% of the total value of the loan.

Of course, the Biden administration had reasons to pursue student loan relief efforts; Research has shown that rising student debt rates are putting goals like homeownership out of reach for many Americans. If successful, the former president’s initiatives would have led to the largest federal education debt relief in U.S. history. Despite its failures, the Biden administration has waived over $180 billion in student loans; this is the highest figure by any presidential administration.

But Yannelis argues that in hindsight, debtors might have been better off if they had ignored political guarantees altogether.

“I think the takeaway from this is that the promises of these politicians can have really negative effects for many borrowers,” he said. “Because people had beliefs that turned out to be false, they were making plans based on misinformation. They weren’t paying back their loans in the best way possible, and they weren’t making the best financial plans,” he said. “And this actually has real welfare consequences.”

‘Wait a minute, I thought my credits were up.’

Consumer expectations have been in a steady state of hammering during the Biden administration’s loan forgiveness efforts, but optimism had begun earlier. The 2020 Democratic presidential primaries, in which each major candidate proposed some variation of the student loan forgiveness program, attracted widespread public attention on the issue. During this time, coverage of what student loans would entail and how they might play out under a Democratic administration increased, resulting in an initial boost in borrower optimism.

Biden’s announcement in August 2022 increased optimism about student loan debt forgiveness among borrowers by nearly 22%, according to the research. News headlines about increasingly widespread loan forgiveness efforts ahead of the first court case filed to block the plans in October 2022 boosted borrower optimism by an additional 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 to alleviate student loan debt threw public into turmoil. The reversal of public sentiment was further exacerbated by President Trump’s election victory in 2024.

But consumer expectations weren’t based solely on headlines or video clips. Until November 14, 2022 16 million Americans had already been approved for federal student loan assistance. Even worse, the Ministry of National Education sent emails Even though the plan was blocked, nine million people were notified of their approval. Nearly 1 in 20 Americans might reasonably have expected tens of thousands of dollars in aid and shaped their spending habits accordingly.

“I often meet with a group of debtors, some of whom may have received a letter saying: [their] Betsy Mayotte, president of the Institute of Student Loan Counselors (TISLA), said, “the loans are going to be forgiven and now all of a sudden they’re getting bills, they may even be in default.” “Wait a minute, I thought my loans were gone.”

During this period, borrowers also became less likely to spend on long-term “durable” purchases such as housing, cars and white goods; The study found a shift away from durable spending towards more urgent, non-durable purchases.

Postponing major purchases during a period of high inflation turned out to be a mistake; As uncertainty around student loans fades, much higher price tags have emerged. From the first student loan payment pause during the Covid-19 pandemic in March 2020 to March 2025, the average price of a home in the United States increased by over 34%. $383,000 to $514,000. During the same period, the price of a new car increased by over 20%.

Mayotte says financial hardship will continue for many consumers who have built their personal budget projections around a much lower student loan repayment amount. Things could get worse with the failure of the SAVINGS plan, Biden’s latest attempt to streamline and subsidize monthly loan payments for low- and middle-income individuals. completely phased out As of July 1.

“More often I see borrowers making other financial decisions based on what they think they will receive based on the payment they will make under the SAVE plan,” Mayotte said. “Now that SAVE is gone, their next lowest payment will be much higher… and they can’t afford it [their current means]. “Now, the same people who are hit by these higher copay amounts are also being hit with higher health premiums, higher fuel prices… I continue to call this a perfect storm of significantly increased spending,” he said.

Yannelis says the picture may not become clearer for borrowers in the next few years.

In fact, the landscape for student loan forgiveness continues to evolve; This week, courts are blocking the Trump administration’s efforts to change eligibility for Public Service Loan Forgiveness.

“We are at a time in American history where polarization is historically high… the highest level since the Civil War,” Yannelis said. he said. He says the research is a warning that major policy changes between presidential administrations should be cause for concern for personal finances, and that consumers shouldn’t treat any policy plan as a sure thing. “Different parties can do very different things in terms of student loan policy. [again] be blocked by the court[s]. “So unfortunately there is still a tremendous amount of uncertainty that is causing significant harm to consumers.”