According to a report, college students are borrowing more for the coming year, despite legal issues with federal student loan forgiveness plans!
The future of federal student loan forgiveness remains uncertain, but this hasn’t stopped college students from borrowing more money. According to recent studies, the anticipation of potential debt forgiveness might be influencing students to take on additional loans.
As college tuition continues to soar, many families find themselves unable to pay the full amount out of pocket. As a result, more students and their parents are relying on student loans. The annual “How America Pays for College” report by Sallie Mae reveals that nearly half of families (49%) borrowed money for the 2023-24 academic year, up from 41% the previous year. This data comes from a survey conducted in the spring with 1,000 parents of undergraduate students and 1,000 undergraduate students aged 18 to 24.
Student debt in the United States has reached a staggering $1.7 trillion, setting a new record. Over the past 15 years, the total student loan balance has more than doubled, growing faster than the rising costs of higher education.
Almost half of student loan borrowers (48%) expect some form of debt forgiveness after graduation, according to the report. Among those who anticipate forgiveness, 37% intend to work in public service, while 7% expect their future employer to cover their loans. On the other hand, 47% believes that the government will cancel their student loans. Rick Castellano, a spokesperson for Sallie Mae, noted that half of students expect their loans to be forgiven and as a consequence they might be more inclined to borrow more money.
A separate report by NerdWallet, based on a survey of over 600 adults with student loans, found that 31% of student loan borrowers have slowed their repayments, hoping for their loans to be reduced or forgiven by the federal government, and 23% have stopped payments entirely for the same reason.
Sameer Gadkaree, president of the Institute for College Access and Success, a nonprofit focused on college affordability, explained that it’s too early to fully understand how the expectation of loan forgiveness is influencing borrowing decisions.
“Given that the debt relief plans have been tied up in courts, it’s unclear how that would affect student borrowing”, Gadkaree said.
How To Deal With Student Loan Debt
According to Kate Wood, a loan expert at NerdWallet, the ongoing legal disputes on forgiveness plans have created “a confusing climate for student loan borrowers”. For those considering taking on new debt, experts recommend carefully choosing a major and considering future earning potential. A common guideline is to avoid borrowing more than you expect to earn in your starting salary.
Experts also advise against taking on debt that you might not be able to repay, hoping it will eventually be forgiven. For those already struggling with student debt, there are several federal options to help reduce the burden, such as economic hardship deferments and unemployment deferments. While the income-based repayment plan (SAVE) is currently on hold, Wood advises borrowers to consider repayment options “based on what’s available now, not on what they think might happen in the future”.