Student-loan borrowers have enjoyed a nearly four-year spring break from making payments. They have used their savings to splurge on vacations, home renovations and other personal indulgences. According to a June UBS survey, 62% of student-loan borrowers agreed with the spending philosophy of “live for today because tomorrow is so uncertain.” In fairness to them, it was uncertain whether they’d have to repay their student loans—and most probably won’t.
The payment pause, which President Biden prolonged, enabled college grads to spend beyond their means while his promises of loan forgiveness encouraged them to pile on the debt—not only for expensive advanced degrees but also homes, cars and travel. As a result, borrowers are in a worse position financially than before the pandemic.
A Fidelity survey this month reported that two-thirds of borrowers say they don’t know how they will resume making payments once the pause ends next month. Some in the media call the restart a “student loan cliff.” This is overdramatic, but nobody should be surprised if borrowers, lured by government promises of loan forgiveness, sleepwalk over the proverbial ledge.