{"id":1639,"date":"2026-06-17T21:40:35","date_gmt":"2026-06-17T21:40:35","guid":{"rendered":"https:\/\/crosscountrymovingteams.com\/?p=1639"},"modified":"2026-06-17T21:40:35","modified_gmt":"2026-06-17T21:40:35","slug":"bidens-flip-flopping-on-student-loan-promises-made-borrowers-increase-discretionary-spending-and-were-7-5-more-likely-to-default-as-a-result","status":"publish","type":"post","link":"https:\/\/crosscountrymovingteams.com\/?p=1639","title":{"rendered":"Biden\u2019s flip-flopping on student loan promises made borrowers increase discretionary spending, and were 7.5% more likely to default as a result"},"content":{"rendered":"
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That flip-flopping forced American federal student loan holders to go through a rollercoaster of emotions at the time, and now, researchers have put a real financial cost to it too.<\/p>\n

Read more How surging gold prices led to the biggest jump on this year\u2019s Southeast Asia 500<\/a><\/p>\n

Borrowers who believed Biden\u2019s repeated promises of relief were 7.5 percentage points more likely to be 90 days past due on their loans by May 2025, according to new research from the National Bureau of Economic Research. The finding, drawn from a study linking survey data on borrower beliefs to credit bureau records, puts a precise number on the financial damage inflicted by years of government policy whiplash on student debt.<\/p>\n

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\u201cThere are very real costs for consumers of politicians flip-flopping,\u201d said Constantine Yannelis, an economist at the University of Cambridge and one of the paper\u2019s co-authors. \u201cIf consumers take actions based on beliefs that are not actually true because of mistaken policy promises, they may engage in financial planning that actually turns out not to be in their best interest.\u201d<\/p>\n

The paper, co-authored with Dmitri Koustas and Michael Weber, tracked borrowers\u2019 beliefs about forgiveness from 2022 through mid-2025, linking survey responses to credit bureau records and consumption data. What it found was a direct pipeline from political promise to financial harm: Borrowers who expected forgiveness stopped making payments, increased spending, and were wholly unprepared when the bill finally came due.<\/p>\n

\u201cA lot of people who thought they would get forgiveness and didn\u2019t ended up becoming delinquent on their loans,\u201d Yannelis told Fortune<\/em>. \u201cThey didn\u2019t plan ahead, they probably made other spending commitments, and we actually saw them defaulting.\u201d<\/p>\n

Borrowers who were optimistic of future loan forgiveness reduced their monthly student loan payments by $40 and increased non-durable spending by $100 per month\u2014essentially spending money they hadn\u2019t yet saved. Many stretched into longer repayment terms to minimize payments while waiting for relief that never came. When payments resumed and forgiveness didn\u2019t materialize, those borrowers faced a sudden financial shock they hadn\u2019t planned for.<\/p>\n

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\u201cOnce the payments resume, they\u2019re suddenly hit with this major financial shock,\u201d Yannelis said. \u201cIf you were forward-looking and knew that you had that cost, you would plan ahead for it.\u201d<\/p>\n

The pattern accelerated with each extension. Biden\u2019s August 2022 executive order\u2014which promised $10,000 in relief for most borrowers and $20,000 for Pell Grant recipients\u2014was announced just months before the midterm elections, then blocked by the Supreme Court in June 2023. But by that point, the payment pause had already been extended seven times, and borrowers had learned a lesson: When Biden said \u201cfinal,\u201d he didn\u2019t mean it.<\/p>\n

Read more The Iran war exposed Southeast Asia\u2019s energy vulnerability. Now its import bill could triple to $245 billion<\/a><\/p>\n

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\u201cIf you tell the kids you get another half hour before bedtime, they think they\u2019ll stay up all night,\u201d Yannelis said. \u201cBut at some point the administration changed, and there was a real policy change.\u201d<\/p>\n

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The delinquency data reflects that moment. Borrowers most optimistic about further extensions were the ones least prepared when the Trump administration held the line on repayment\u2014and when it announced defaulted loans would move to collections, a policy that triggered significant backlash. The chaotic return of payments was marked by servicer errors, miscalculated bills, and widespread non-payment from the start.<\/p>\n

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The damage extended beyond missed payments. More optimistic borrowers increased spending on durable goods\u2014including cars and, in some cases, homes\u2014while waiting for loan forgiveness that never arrived. The researchers calculated welfare losses from incorrect beliefs could potentially reach up to 43% of the initial loan balance in the most extreme cases, translating to roughly $21,500 on the median borrower\u2019s $50,000 in debt.<\/p>\n

Losing trust in politicians<\/h2>\n

Yannelis said all of this flip-flopping caused people to lose trust in politicians\u2014especially when trust was already low to begin with. This, he said, translates to even current-day issues, like Social Security, whose trust fund is now projected to be depleted by 2032 for the retirement fund. That would trigger automatic cuts of up to 24% for retirees, something most future recipients either don\u2019t know or don\u2019t believe will result in the benefit cuts current law would require.<\/p>\n

\u201cThere would be large benefits to consumers if politicians could give more clear guidance about fiscal policy,\u201d Yannelis said. \u201cTo the extent that there could be more forward guidance, that would allow consumers to make plans about their lives.\u201d<\/p>\n

The research adds a behavioral economics dimension to a debate that has largely focused on the fairness and fiscal cost of forgiveness itself. Whatever one thinks of the merits of canceling student debt, the paper suggests, the cost of promising it and then failing to deliver may rival the cost of the policy itself.<\/p>\n

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\u201cThe timing of the announcement of student loan forgiveness that was blocked by courts\u2014it wasn\u2019t random,\u201d Yannelis said. \u201cYou often see politicians offering things like stimulus checks right before elections.\u201d<\/p>\n

Read more Kevin Warsh\u2019s first Fed meeting sees rates hold steady and makes outright promise to deliver price stability\u2014but don\u2019t expect many details on when<\/a><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

When the government hints at doing something big, like canceling student loans, people start acting as if it’s already happened, even if it’s not guaranteed.<\/p>\n","protected":false},"author":1,"featured_media":1638,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[285],"tags":[],"class_list":["post-1639","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-student-loans-and-debt"],"yoast_head":"\nBiden\u2019s flip-flopping on student loan promises made borrowers increase discretionary spending, and were 7.5% more likely to default as a result - Cross Country Moving Team<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/crosscountrymovingteams.com\/?p=1639\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Biden\u2019s flip-flopping on student loan promises made borrowers increase discretionary spending, and were 7.5% more likely to default as a result - 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