Reports warn borrowers to spend refunds 'wisely' before Supreme Court decides loan forgiveness

Borrowers may have to repay student loan refunds if the Education Department loses upcoming Supreme Court cases.

A report revealed that nearly three-fourths of surveyed borrowers planned to spend refunds ‘on non-essentials, including vacations, smartphone[s],’ and ‘drugs/alcohol.’

As the Biden administration’s student loan forgiveness plan faces upcoming legal challenges, borrowers are reportedly spending refunds on smartphones, vacations, and other "non-essentials." Media outlets are cautioning borrowers to spend money "more wisely." 

One report revealed that nearly three-fourths of 1,250 surveyed borrowers planned to spend refunds on "non-essentials," according to Intelligent, a publication that advises students on higher education. 

Nearly the same percentage of respondents agreed that "they could use money more wisely."  

The report continued by sharing that 27 percent of "applicants say they are likely [to] spend the extra money on" gambling. Around the same time that Intelligent administered the survey, The New York Times published criticisms by current and former faculty and staff, who expressed concern over universities introducing indebted students to sports betting. 

The White House introduced its plan for indebted borrowers in August 2022, which “target[ed] ‘low-to middle-income borrowers’ by forgiving up to $20,000 in federal student loans for Pell Grant recipients and $10,000 for non-Pell Grant recipients,” Campus Reform reported

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The Supreme Court will hear arguments for two of the six lawsuits against the Education Department (ED), one brought by “states alleging that the plan ‘will hurt the profits of companies in their states that service federal student loans’” and the other “brought by two plaintiffs who are excluded from the plan.” 

Because borrowers received refunds that, pending Supreme Court rulings, they may have to repay, media outlets are advising students on how to handle the refunds. 

“I'm not touching these funds until a decision has been made on student loan forgiveness,” a financial editor and borrower wrote in CNET. “And if you receive a student loan refund, I recommend you don't either.” 

Instead, the borrower said, she placed her refunds in “a high-yield savings account” that she cannot access with her debit card. 

The borrower is also “making monthly payments” to herself. 

“In other words, instead of paying my loan servicer hundreds of dollars per month, I'm putting that cash directly into the high-yield savings account where my refund is,” she wrote. 

The Washington Post similarly reported that “interviews with a dozen borrowers” revealed that “nearly all have stashed away their refunds in savings accounts, hoping to earn interest on the money before sending it back to the Education Department.”

If ED successfully defends the plan in court, borrowers will not have to repay their refunds. However, a report shared by Campus Reform suggests that taxpayers might assume the cost of deferred loan payments. 

[RELATED: 'Someone still has to pay': Student loan cancelation hurts average taxpayers, expert argues]

“The Committee for a Responsible Federal Budget released the analysis, which said Biden’s changing the repayment restart date from Dec. 31 until 60 days after litigation is decided will cost tens of billions of dollars in lost interest collection,” The Center Square wrote

The committee called the payment pauses “costly," "inflationary," "regressive," and economically unjustified.

Campus Reform contacted the Education Department, Committee for a Responsible Federal Budget, CNET for comment. This article will be updated accordingly.