U.S. student loan policy shifts raised repayment risks for borrowers, study finds

Traders Union
All News
Financial News
U.S. student loan repayment risks

Highlights

Borrowers anticipating student loan forgiveness were 30% less likely to make payments, reducing monthly outlays by $100 and increasing 90-day delinquency rates by 7.5% as of May 2025.
Spending patterns shifted from durable goods to non-durables amid high inflation, with U.S. house prices rising 34% to $514,000 and new car prices up 20% from March 2020 to March 2025.
Policy uncertainty persists as the SAVE plan ended July 1 and courts recently blocked Trump-era changes to Public Service Loan Forgiveness eligibility.

Research links forgiveness expectations to borrower losses

As first reported by CNBC, a new NBER working paper links borrower expectations about student loan forgiveness to repayment behavior, spending patterns and credit outcomes over roughly five years. The paper, authored by University of Chicago professor Dmitri K. Koustas, Purdue University professor Michael Weber and University of Cambridge professor Constantine Yannelis, finds that borrowers who believed they were more likely to receive relief were 30% less likely to make monthly student loan payments and paid about $100 less per month on average toward those balances.

The study says those decisions later added to financial strain as the Biden administration's forgiveness efforts ran into legal setbacks and a Supreme Court defeat in 2023. As of May 2025, optimistic borrowers were 7.5% more likely to be 90 days past due on monthly loan payments, while some who chose longer repayment terms in anticipation of future cancellation ended up reducing the loan's value by as much as 6.88%.

Researchers say public expectations rose well before Biden's August 2022 announcement, helped by the 2020 Democratic primary campaign, when major candidates backed some form of student debt relief. The paper estimates that Biden's 2022 plan lifted borrower optimism by about 22%, and frequent headlines before court action in October 2022 added another 4% on average.

Budget pressure persists as policy uncertainty continues

Borrowers were not only changing repayment patterns, they were also shifting how they spent. The study finds less spending on durable goods such as housing, cars and appliances, and more on immediate non-durable purchases, a trade-off that proved costly during a period of high inflation.

From March 2020 through March 2025, the average U.S. house price rose more than 34%, from $383,000 to $514,000, while new automobile prices climbed more than 20%. Betsy Mayotte, president of The Institute of Student Loan Advisors, says some borrowers built household budgets around lower projected payments under relief programs, only to face larger bills later, especially after the SAVE plan was phased out as of July 1.

The policy outlook remains unsettled. Yannelis says borrowers still face significant uncertainty as presidential administrations pursue different student loan approaches that can later be challenged in court, and the article notes that courts this week blocked a Trump administration effort to change eligibility for Public Service Loan Forgiveness.

In our earlier article on an Iowa developer’s bankruptcy discharge waiver, we covered how Jeffrey Garth Ewing agreed to forgo a discharge after federal scrutiny found pre-filing transfers that appeared designed to shield assets from creditors. The court’s approval left more than $17.7 million in debt enforceable, allowing creditors to continue pursuing repayment once the case closes.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.