Fulfilling a campaign promise, Biden is erasing $10,000 in federal student loan debt for those with incomes below $125,000 a year, or households that earn less than $250,000. He’s going further, canceling an additional $10,000 for those who received federal Pell Grants to attend college. Student loan forgiveness could help more than 40 million:
More than 40 million Americans could see their student loan debt reduced — and in many cases eliminated — under the long-awaited forgiveness plan President Joe Biden announced Wednesday, a historic but politically divisive move in the run-up to the midterm elections.
It’s seen as an unprecedented attempt to stem the tide of America’s rapidly rising student debt, but it doesn’t address the broader issue — the high cost of college.
[B]iden also extended a pause on federal student loan payments for what he called the “final time.” The pause is now set to run through the end of the year, with repayments to restart in January.
“Both of these targeted actions are for families who need it the most: working and middle class people hit especially hard during the pandemic,” Biden said at the White House Wednesday afternoon.
The cancellation applies to federal student loans used to attend undergraduate and graduate school, along with Parent Plus loans. Current college students qualify if their loans were issued before July 1. For dependent students, their parents’ household income must be below $250,000.
The New York Times reports, Biden to Cancel $10,000 in Student Loan Debt; Low-Income Students Are Eligible for More:
President Biden announced student loan debt relief on Wednesday for tens of millions of Americans, saying he would cancel $10,000 in debt for those earning less than $125,000 per year and $20,000 for those who had received Pell grants for low-income students.
The debt forgiveness, although less than what some Democrats had been pushing for, comes after months of deliberations in the White House over fairness and fears that it could exacerbate inflation before the midterm elections.
“All of this means people can start finally to climb out from under that mountain of debt,” Mr. Biden said in remarks from the White House. “To finally think about buying a home or starting a family or starting a business. And by the way, when this happens the whole economy is better off.”
Mr. Biden also announced that a pandemic-era pause on student loan payments, which has been in effect since March 2020, would expire at the end of the year [it was set to expire Aug. 31.] The debt relief plan will almost certainly face legal challenges, making the timing of any relief uncertain.
Across the United States, 45 million people owe $1.6 trillion for federal loans taken out for college — more than they owe on car loans, credit cards or any consumer debt other than mortgages.
Mr. Biden has been agonizing over how to address student loan debt for months. He has been under pressure from progressive Democrats who say debt forgiveness is necessary to address racial disparities in the economy. But critics say widespread debt forgiveness is unfair to those who tightened their belts to pay for college, and Republicans and some Democrats contend that it will add to inflation by giving consumers more money to spend.
Canceling debt is not a government stimulus payment. People have been choosing which bill gets paid each month. They will simply be paying what they already owe, instead of defaulting on their mortgage or car payment, or making their rent and paying for utilities. That’s a good thing. That’s a humanitarian thing.
The White House sought to address those economic concerns by carefully targeting the relief.
Students who received Pell grants will be eligible for $20,000 in debt forgiveness. Around 60 percent of borrowers have received Pell grants, and the majority come from families making less than $30,000 a year. The Education Department estimates that 27 million borrowers will qualify for up to $20,000 in relief.
Millions of other borrowers will be eligible for $10,000 in debt relief, as long as they earn less than $125,000 a year or are in households earning less than $250,000. Current students are also eligible for the debt relief; if they are dependents they will be assessed based on their parents’ income.
Borrowers will be assessed based on the income they reported in 2021 or 2020.
“I was standing in my dorm room when I heard this and I just let out a scream,” said Marlene Ramirez, who relied on Pell grants and other aid to pay for her undergraduate studies.
Ms. Ramirez, whose parents immigrated from Mexico, was the first in her family to go to college. She used the grants to cover two years of study at a community college, than transferred to the University of California, Los Angeles, and graduated in 2020 with a bachelor’s degree in anthropology. Scholarships and aid covered her tuition, but she has $25,000 in federal loans that she used to cover her housing and living expenses.
“This will almost wipe that out,” said Ms. Ramirez, 25, who is finishing a master’s degree at the London School of Economics. “I’m shaking right now — this is life-changing.”
But [GQP] critics said Mr. Biden’s move was deeply unfair.
Loan forgiveness and government bailouts are only for Wall Street banks and corporations, dontcha know.
On its face, the move could cost taxpayers about $300 billion or more in money they effectively lent out that will never be repaid. But the true cost is harder to calculate, and likely to be smaller, because much of that debt was unlikely to ever be repaid. More than eight million people — one in five borrowers with a payment due — had defaulted on their loans before the coronavirus pandemic. Many of those people carried fairly small balances and will now be eligible for loan cancellation.
Mr. Biden also proposed various changes to the repayment system — which would need to be implemented through rule-making by the Education Department — that would slash many borrowers’ monthly bills. He is seeking to let those with undergraduate loans cap their payments at 5 percent of their discretionary monthly income, down from the 10 percent ceiling currently in place on most income-based payment plans.
He is also seeking to have the government cover the monthly interest for those making payments — even if their payment is zero, because their income is low — so that borrowers’ balances won’t balloon. Under the current system, interest still accrues, and many borrowers find themselves falling deeper into debt even as they make their monthly payments.
Many Democratic lawmakers and progressive groups had argued that addressing economic racial disparities would require forgiving $50,000 of debt, citing reports showing that Black and other nonwhite borrowers end up with higher average loan balances than their white peers.
“Targeting twice as much relief to Pell recipients helps close the racial wealth gap,” said Senator Elizabeth Warren, Democrat of Massachusetts, who has pressed for widespread student debt cancellation.
Ms. Warren said she would “keep asking for more and making the case, but it’s so important not to lose sight of what’s just happened. It’s historic. No president in history has reached so directly into the lives of so many millions of working people and said, ‘You invested in yourself to get an education, and the rest of the country wants to help you with that.’”
Representative Tony Cárdenas, a California Democrat who met with the White House to advocate debt cancellation, said even the limited relief could be the galvanizing factor Mr. Biden’s party needs before the midterms in November.
“That’s a lot of young people that are going to be able to have a sigh of relief,” Mr. Cárdenas said. He said the plan would let them “look forward to buying a house soon; they could look forward to starting a family sooner.”
He and other members of the Hispanic Caucus helped ramp up pressure on Mr. Biden this spring, when they said he indicated in a private meeting that he intended to provide some form of debt relief for Americans. Shortly afterward, the president publicly said he was considering the move and would announce details in the coming weeks.
But inside the White House, Mr. Biden’s top aides were debating the political and economic ramifications of the decision. According to people familiar with his thinking, the president was concerned that loan cancellation would be seen as a giveaway that would be an affront to those who had paid their or their relative’s tuition. Some top aides also argued that Mr. Biden lacked the legal authority to move forward with the sweeping loan forgiveness and that he should work with Congress instead of using executive action.
Soaring inflation also complicated the process.
Mr. Biden’s economic advisers, however, made the case that by resuming loan payments and pairing the loan forgiveness with income caps, the cancellation would have a negligible effect on rising consumer prices. Arindrajit Dube, an economist at the University of Massachusetts-Amherst who consulted with administration officials on student loans, said in an interview that the additional consumer spending spurred by the bill would be a “drop in the bucket” in the U.S. economy and unlikely to add to inflation.
“There are principled reasons to be both supportive and opposing” of the plan, Mr. Dube said, including questions of economic fairness and who benefits from loan forgiveness. But, he said, “I just don’t see inflation being the issue here.”
The president’s chief of staff, Ron Klain, advised Mr. Biden that providing relief could galvanize young voters who are increasingly frustrated with him.
Senate Democrats continued to make direct appeals to the White House for loan forgiveness in the days leading up the decision. Senator Charles Schumer of New York, the majority leader, as well as Ms. Warren and Raphael Warnock of Georgia, met with Mr. Klain and Brian Deese, one of Mr. Biden’s top economic advisers.
Legal challenges are expected, although who would have the standing to press their case in court is unclear. A recent Virginia Law Review article argued that the answer might be no one: States, for example, have little say in the operation of a federal loan system.
Many economists warned the move could have damaging consequences for students and taxpayers in the future, by encouraging colleges and universities to raise prices with the federal government footing the bill.
It is up to Congress to revamp the student loan program which colleges and universities have abused for years for profit, making the cost of a college education prohibitively expensive.
Federal Student Aid: The Biden-Harris Administration’s Student Debt Relief Plan Explained.