President Joe Biden announced his long-awaited plan on Wednesday to deliver on a campaign promise to provide $10,000 in student debt forgiveness to millions of Americans — and up to $10,000 more for those who have most financial need – as well as new measures to ease the burden of repaying their remaining federal student debt.
Borrowers who earn less than $125,000 a year, or families earning less than $250,000, would be eligible for the $10,000 loan forgiveness, Biden announced in a tweet. For recipients of Pell Grants, which are reserved for undergraduate students with the greatest financial need, the federal government would forgive up to an additional $10,000 of federal debt.
Biden is also extending a pause on federal student loan repayments for what he called the “last time” through the end of 2022. He was scheduled to deliver a speech Wednesday afternoon at the White House to unveil his proposal to the audience.
If his plan survives legal challenges that are almost certain to come, he could deliver a boon to part of the nation ahead of the midterm elections this fall. More than 43 million people have federal student debt, with an average balance of $37,667, according to federal data. Almost a third of borrowers owe less than $10,000 and about half owe less than $20,000. The White House estimates Biden’s announcement would wipe out federal student debt for about 20 million people.
Supporters say the cancellation will narrow the racial wealth gap — black students are more likely to borrow federal student loans and at higher amounts than others. Four years after graduating with a bachelor’s degree, black borrowers owe an average of nearly $25,000 more than their white peers, according to a Brookings Institution study.
The action drew praise from a wide range of Democrats, but is unlikely to fully appease any of the factions jostling for influence as Biden weighs how much to cancel and for whom.
Biden has faced pressure from liberals to provide broader relief to hard-hit borrowers, and from moderates and Republicans questioning the fairness of any broad pardons. The delay in Biden’s decision has only heightened anticipation for what his own aides acknowledge to be a vexing set of political and political choices. The people spoke on condition of anonymity to discuss Biden’s planned announcement ahead of time.
The White House has pointed out that no one in the top 5% of incomes will see loan relief.
The continuation of the payment freeze in the age of the coronavirus pandemic comes just days before millions of Americans are ready to know when their next student loan bills will be due. It’s the closest the administration has come to the end of the payment freeze extension, with the current pause set to end on August 31.
Details of the plan were closely watched as Biden weighed his options. The administration said on Wednesday that the Department of Education will release information in the coming weeks for eligible borrowers to register for debt relief. Cancellation for some would be automatic if the department has access to their income information, but others would have to fill out a form.
Current students would only be eligible for relief if their loans were taken out before July 1, 2022. Biden is also proposing to cap the amount borrowers must pay monthly on undergraduate loans at 5% of their income, up from 10 % previously. The Department of Education is to release a proposed rule to that effect, which would also cover unpaid monthly interest for borrowers who stay on top of their monthly payments — even when payments are $0 because their incomes are low.
The Biden administration’s plan would also increase the income floor for repayments, meaning no one earning less than 225% of the federal poverty level would need to make monthly payments.
“The positive impacts of this decision will be felt by families across the country, especially in minority communities, and is the single most effective step the President can take to help working families and the economy,” he said. said Senator Elizabeth Warren. Wednesday in a joint statement with Senate Majority Leader Chuck Schumer.
Tweeted Representative Pramila Jayapal, Chair of the House Progressive Caucus: “This will bring real relief to 43 million people and is a MASSIVE step in the right direction.”
The Department of Justice issued a legal opinion on Wednesday concluding that the Higher Education Relief Opportunities for Students Act gives the Secretary of Education the “power to reduce or eliminate the obligation to repay the principal balance of federal student loan debt”. The legal opinion also concluded that the debit could be applied on a “class-wide” basis in response to the coronavirus pandemic. Still, some conservative groups were considering possible legal challenges.
During the 2020 presidential campaign, Biden was initially skeptical of student loan debt forgiveness as he battled more progressive candidates for the Democratic nomination. Meaning. Warren, D-Mass., and Bernie Sanders, I-Vt., had offered cancellations of $50,000 or more.
As he tried to build support among young voters and prepare for an election battle against President Donald Trump, Biden unveiled his initial debt forgiveness proposal of $10,000 per borrower, with no mention of a cap of income.
Biden has cut back on his campaign promise in recent months by passing the income limit as soaring inflation has had a political impact and as he aimed to ward off political attacks that the cancellation would benefit those who had a higher net salary. But Democrats, from members of the congressional leadership to those facing tough re-election bids in November, have pushed the administration to go as broadly as possible on debt relief, seeing it in part as a galvanizing issue, especially for black voters and young people this fall.
A survey of 18 to 29 year olds conducted by the Harvard Institute of Politics in March found that 59% of respondents favored some sort of debt forgiveness – whether for all borrowers or those who have debt. no longer needed – although student loans do not rank high among the issues that most concern people in this age group.
Republicans reacted quickly to Biden’s decision on student debt relief on Wednesday, calling on the administration to “sell out working families” to appease the party’s progressive wing.
“Today’s announcement is an insult to all Americans who have played by the rules and worked hard to responsibly pay down their own debt,” Senator John Barrasso, chairman of the Senate Republican Conference, said in a statement. a statement.
Republican Leader Mitch McConnell called the move a “slap in the face” for working American families.
“President Biden’s inflation is crushing working families, and his response is to give even more government money to the elites with higher wages,” McConnell said. “The Democrats are literally using American working people’s money to try to buy some enthusiasm from their political base.”
Biden’s lengthy deliberations led to grumbling among federal loan managers, who had been instructed to withhold billing statements while Biden weighed a decision.
Industry groups complained that the late decision left them just days to notify borrowers, retrain customer service employees and update websites and digital payment systems, said Scott Buchanan, executive director of the Student Loan Servicing Alliance.
This increases the risk of some borrowers being inadvertently told they need to make payments, he said.
“At this late stage, I think that’s the risk we’re running,” he said. “You can’t settle for a dime with 35 million borrowers who all have different loan types and statuses.”