Biden to announce plan for historic student debt relief
After months of deliberation and intense pressure from advocates, the president will cancel at least $10,000 for millions of borrowers, extend the payment pause through the rest of the year and more.
President Joe Biden this afternoon will announce a plan to cancel $10,000 of student loan debt for borrowers earning up to $125,000. The federal government will also cancel up to an additional $10,000 in federal loan debt for recipients of Pell Grants, which help undergraduate students from low-income households pay for college. Additionally, Biden will extend the pause on student loan payments through the end of the year.
The decision, which will undoubtedly be challenged in court, comes days before the latest extended pause on loan payments was set to expire and after more than a year of internal deliberations between Biden and his advisors. And it represents the president’s attempt to fulfill a major campaign promise that energized the young and racially diverse coalition that powered his victory in 2020 while remaining within the limits of executive authority and avoiding adding to inflation.
But coming off a summer of signature legislative wins, Biden found himself in what looked like a no-win political situation. Civil rights groups and progressive politicians scoff at what they view as nominal relief that’s insufficient to close the racial wealth gap since Black borrowers historically have borrowed more money to fund their higher education than their white counterparts. These same critics are also frustrated that the relief is means-tested because they say the income requirement will burden borrowers with unnecessary bureaucracy instead of the government just canceling the debt for all borrowers. (A senior administration official said the Education Department will announce next steps for borrowers in the coming days.)
On the flip side, Republicans, along with some people who didn’t attend or finish college and some borrowers who already paid off their student loans perceive Biden’s announcement as an unfair government handout that their tax dollars are subsidizing against their will.
Wade Caves, a New York City-based solo creator who will be debt free now that his student loans will be canceled, told Supercreator that cancelation will add years back to his financial life and give him a shot at achieving important financial independence goals by his 40th birthday.
“For those who feel this is a handout, I share your frustration. Student debt should’ve been forgiven a lot sooner,” Caves said. “We are drowning in issues that need immediate investment — climate change, public health, food and water supply, domestic terrorism. We don’t hold off on investing in these areas because we might not live to see the tide get reversed and I think the same logic applies here.”
Syd Hayman, a writer and editor who lives in Little Rock, Arkansas, and paid off her student loan debt by age 30, said she is thrilled by Biden’s decision because so many of her peers would finally be able to move forward in life in a way that might feel more attainable.
“So maybe if my loans are $10,000, maybe it seems more feasible that they can manage the payments better while also working on enjoying the life they want to have or if they want to buy a house or something like that to be able to afford other things in life,” Hayman, a said. “I feel like a heavy student loan balance burdens so many people’s lives and I don’t feel like the struggle needs to be passed down.”
The canceled debt will not be counted as taxable income and graduate debt is included in the plan, which also encompasses Parent PLUS loans. And no individual or household in the top five percent of incomes will benefit from the president’s action, despite claims to the contrary.
President Biden will also announce a proposed rule that would require borrowers to pay no more than five percent of their discretionary income on undergraduate loans, down from 10 percent. The rule would also guarantee that no borrower earning about the annual equivalent of a $15 minimum wage would have to make monthly payments and forgive loan balances of $12,000 or less after 10 years of payments, instead of 20 years.
One in three borrowers will see their student loans completely wiped out after Biden’s decision, according to the office of Federal Student Aid at the Education Department. 20 percent will see at least half of their student loan debt canceled and another 21 percent will receive relief for at least a quarter of their loans. Young borrowers will be impacted the most: More than half of all Americans with student debt are between the ages of 18 and 34.
The Penn Wharton Budget Model estimates that the cancelation at this threshold will cost $300 to $330 billion over the next decade. (The price tag would have been $980 over the same period had Biden canceled $50,000 per borrower.)