Trump Wants Student Loan Payback (Now)

After credit-card companies realize pandemic boost

Trump wants student loan borrowers back in repayment status, and there’s debate over his motivation. Some argue it’s purely ideological: Republicans reject loan forgiveness as unfair to those who didn’t go to college, as well as those who worked hard to pay off their debt.

The initiative plays well with Trump’s base, especially among those without degrees who see cancellation as a handout to the educated class. It also ties into the GOP’s long-standing “personal responsibility” narrative. If you take out a loan, you should pay it back. That seems fair.

Biden’s Backdoor Economic Stimulus

Some say it is both ideological and economic—because Biden’s loan forgiveness plan was effectively a “backdoor stimulus” program. By canceling student loan payments, the administration put money directly into the hands of consumers. For millions of borrowers, especially those in their 20s and 30s, the relief didn’t sit in savings accounts but was spent on rent, groceries, transportation, and child care.

The Brookings Institution explained that “student loan forgiveness increases disposable income,” which boosts short-term demand in the economy. More than 43 million Americans hold federal student loan debt, with the average balance close to $38,000, and so freeing up even a few hundred dollars a month for this group had a strong multiplier effect—both for individuals and for the broader economy. The loan forgiveness plan helped the economy, and because it was a form of stimulus, naturally, Trump wants to get rid of it.

It’s All About Credit Cards, Baby

There’s an unacknowledged reason behind the loan forgiveness program, however: I believe it was primarily a scheme to help credit card companies, which were especially hurt in the pandemic.

When federal stimulus payments landed in consumers’ bank accounts in 2020 and 2021, many Americans chose not to spend, but to pay down their existing debt. In this time, U.S. credit card balances dropped by a record $76 billion, according to the New York Fed’s quarterly report.

Card issuers don’t like reductions in outstanding balances, because it cuts into their profit. At the same time, credit card companies found themselves facing an equally unwelcome development: they were running out of new customers. With consumers in lockdown and spending depressed, fewer people were signing up for credit cards. Credit card companies blamed themselves and not the market, however, by insisting that their own tightening credit rules were to blame.

And it didn’t help that younger consumers were gravitated toward Buy Now, Pay Later (BNPL) options like Affirm and Afterpay, which offered more flexible, transparent terms — and often, zero interest.

How Student Loan Forgiveness Helped Credit Card Companies

During the federal student loan payment pause, credit reporting agencies were required to treat paused loans as "current," meaning borrowers were not penalized for missed payments. This helped many borrowers maintain or even improve their credit scores during that period. In fact, data from the New York Federal Reserve showed that average credit scores for student loan borrowers increased by about 30 points between 2020 and 2022, a reflection of paused payments and stable reporting practices. Credit reporting agencies like Experian confirmed that federally paused loans did not hurt credit histories and were not flagged as delinquent .

With student loans marked as current and credit scores ticking upward many borrowers found themselves in a stronger position to qualify for new lines of credit. According to data from the Federal Reserve Bank of New York, there was a notable rise in new credit card originations among younger borrowers during the pandemic period, particularly between 2021 and 2022.

Repairing Credit

In 2022, more than 7.5 million Americans were in default on their federal student loans. Many of these borrowers weren’t just behind on payments — they were being pursued by collections agencies, subject to wage garnishments, and had their credit reports deeply damaged. Many individuals with loan defaults were actually good credit risks, despite their low credit scores.

Of course, there’s a lack of direct evidence, but look at the numbers. Credit card balances dropped in 2020—there were down $76bn—but balances surged back to pre-pandemic levels in 2022–2023. And per the New York Fed Q4 2022 report, credit card balances rose at the fastest pace in 20+ years. This surge coincides with the tail end of the student loan pause.

Biden’s Fresh Start initiative did more than just erase defaults and clean up credit reports—it effectively manufactured a wave of newly eligible credit card customers. By temporarily boosting credit scores and pausing collections, the program opened the door for lenders to swoop in and extend credit to millions who had previously been locked out.

Now that the financial system has had its windfall, it’s no surprise that the student loan pause is ending. The program was never meant to be permanent. It did its job by priming on-the-sidelines consumers an opportunity to reenter the debt economy.

With new credit card accounts opened, it's time to on the collection of student loans.