President Biden’s student loan forgiveness plan made a huge splash in the news when it was announced toward the end of August in 2022. However, it’s still far from a sure thing considering several legal challenges are already in the works.
As an example, Politico reports that an organization called the Pacific Legal Foundation has filed a lawsuit stating that the relief amounts to illegal abuse of authority.
Inside Higher Ed has also reported that several other legal groups are exploring options as well, and that even Nancy Pelosi has said that student loan debt cannot be forgiven by the President, and only by Congress. Reportedly, she has since reframed this stance, saying in August that, “Now, clearly, it seems he has the authority to do this.”
Some states (like Indiana) are also promising to tax forgiven loan amounts, which could result in a surprise tax bill for those impacted as early as next year. With all this in mind, celebrating student loan forgiveness could be a little premature right now, depending on who you ask.
And if you’re one of the millions scrolling through TikTok and seeing stories about student loan forgiveness, you might want to get a second opinion about what you watch.
Whatever You Do, Be Wary Of TikTok Advice
It’s smart to take any advice you get off TikTok regarding student loan forgiveness with a huge grain of salt. Unfortunately, a recent study from Vericast showed that 34% of Gen Z consumers get at least some of their financial advice from TikTok and 33% get it from YouTube. In the meantime, only 24% of this age group seek advice from financial advisors and 30% from their financial institution, notes the study.
For example, quite a few TikTok financial influencers have been saying that more student loan forgiveness is likely on the way, so you can continue borrowing for school with that in mind. However, the White House fact sheet on Biden’s student loan forgiveness plan made it very clear that this surge of forgiveness and halt on payments is a one-time deal. The document says the following:
“To ensure a smooth transition to repayment and prevent unnecessary defaults, the pause on federal student loan repayment will be extended one final time through December 31, 2022. Borrowers should expect to resume payment in January 2023.”
Second, the U.S. Department of Education website says over and over that this forgiveness plan is a one-time deal. They even have a page on the website now titled, “One-Time Student Loan Debt Relief.”
And remember, this all matters only if the legal challenges against Biden’s student loan forgiveness plans fail. If successfully brought to a screeching halt through legal proceedings, it’s possible eligible borrowers won’t even get the $10,000 to $20,000 in student loan debt forgiveness they have been promised so far.
Ignore TikTok Stars Who Say More Forgiveness Is On the Way
Financial advisor Jay Zigmont, PhD, who is the founder of Childfree Wealth, reminds people that TikTok is a place to be entertained but not necessarily educated. The challenge with getting your financial advice on social media is that most of those providing advice are not CFP professionals, investment advisors, or other regulated financial advisors, he says.
“Be careful and make sure you are listening to experts, and not just those with the most followers.”
Also remember that the consequences of following bad advice will only apply to you, the borrower. In other words, you could wind up in a world of hurt if you over-borrow for school based on TikTok advice but the additional forgiveness being promised never comes.
Financial advisor Josh Simpson of Lake Advisory Group says that no one should ever borrow money with the intent of not paying it back.
“Everyone who borrows money does so with the knowledge that they will eventually be expected to pay back that money to the lender,” he says. “When it comes to student loans, there are many steps along the way, including entrance and exit counseling, that makes sure the borrower knows they will need to pay that money back.”
Scott Winstead, who is founder of MyElearningWorld.com, also points out that President Biden’s current plan only applies to loans taken out prior to July 1, 2022. In other words, it doesn’t even apply to student loans taken out after July 2022 for the 2022-23 academic year. The plan does propose a new income-driven repayment plan that caps payments at 5% of the borrower’s discretionary income, he says, but it does nothing to fix the underlying problem that the cost of college is rising at an astronomical rate.
Could future student debt be forgiven? Winstead says anything is possible, but there is no indication future forgiveness will occur.
The Bottom Line
Whatever influencers on TikTok are saying, you have to remember that you will be ultimately responsible for repaying (or at least dealing with) student loans you take out. Also remember that both public and private student loans are also notoriously difficult, if not impossible, to discharge in bankruptcy.
Simpson says he feels the same way about TikTok financial advice as he does about professional athletes, actors, musicians and entertainers giving financial or political advice.
“Why would you want to take advice about anything, let alone something as important as finance or politics, from a person that potentially has no real-world experience or advanced education on the topic?” he asks.
You should strive to take advice from experts who know what they are talking about and don’t take a person’s word that they are an expert without checking to make sure.
“There are plenty of places where you can check a person’s credentials online for free before you decide to listen to them,” he says.
The simple fact is this: financial advice is nuanced and each situation is personal. You cannot always explain all the details in a sixty second infotainment clip. And there there is just plain incorrect advice as well.
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