A third of student borrowers spent money they thought would be forgiven: poll

More than a third of student loan borrowers spent money they otherwise would not have when they believed a portion of their debt would be forgiven by the Biden administration, according to a new poll. 

Most borrowers surveyed by Intellingent.com were confident they would receive some student debt relief as part of the Biden administration’s plan to forgive at least $10,000 for federal borrowers and up to $20,000 for those who received a federal Pell Grant while in school. 

The Supreme Court struck down the president’s forgiveness plan at the end of June. 

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The survey conducted from July 6 to July 10 measured the responses of 977 respondents who qualified for Biden’s student loan forgiveness program   

Among borrowers who spent additional money expecting some debt relief, 9 percent spent between $5,000 and $7,501 extra, while another 17 percent spent $5,000 more than they would have had they not expected forgiveness, the poll found. 

Borrowers used what they believed would amount to extra money in their pockets on a range of items, though 37 percent said they paid off other debts. Others used the funds on home repairs and rent payments. 

About 20 percent of borrowers polled said they spent the money on vacation, while fewer than 10 percent said they spent it on alcohol and drugs or gambling. 

Payments are set to resume in October with interest beginning to accrue in September, and more than half of borrowers polled by Intelligent.com said they are not prepared for payments.

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Twenty-seven percent said they are at least somewhat likely to refuse to pay the $10,000 they thought would be forgiven. 

Meanwhile, payment notices are being sent out, and student loan experts are advising borrowers to take several steps to ease the transition back into repayment after a three-year pause. 

Experts say borrowers should update their contact information with their loan servicers; budget out expenses on their needs and wants based on a month’s worth of transactions; and to sign up for auto pay, which would deduct 0.25 percentage points from interest. 

The Biden administration, following the Supreme Court’s decision, announced it would offer borrowers an on-ramp period, where missed payments would not impact their credit ratings or default status from Oct. 2023 to Sept. 2024. 

The administration is implementing new programs that could cover some interest and lower monthly payments.  

The administration said eligible borrowers can enroll in the REPAYE plan, which will be converted to the SAVE plan this fall. 

The new plan will cut monthly payments from 10 percent of discretionary income to 5 percent and ensure unpaid monthly interest won’t cause a borrower’s debt to grow if they’ve been making their monthly payments.