A report from The Wall Street Journal this weekend looks at the impact that having student loan debt forgiven is having on those individuals, ultimately reaching the conclusion that while some may be sleeping a little easier at night, a better financial situation is not guaranteed.
In many cases, borrowers who were in default or who were behind on their student loan payments had other financial issues and debts that were causing them problems, according to the article. Many of those who were in default weren’t making their student loan payments anyway, so it’s not like that money is flowing back into their pocket every month. One study actually revealed that individuals who had their student loan debts forgiven replaced that debt with other forms of debt. Car loan payments increased by $230 per month and credit card payments jumped $220 per month, on average, for those who had their student loan debts forgiven. Individuals who had their student loans forgiven also experienced virtually no change in their credit scores, according to the report, likely because they were taking on new forms of debt.
The article profiled three different individuals who had their student loan debts forgiven — one who said she feels further away from her financial goals than she did before her loans were forgiven, one who is using the money to pay off the student loans for her kids, and one who is using the funds for gas money and to pay for diapers for his 10-month-old daughter.
The last word: “For the typical borrower, the forgiveness is nice but not life-changing,” said Constantine Yannelis, an associate professor of finance at the University of Chicago who studies household finance.
