WASHINGTON – Millions of Americans saddled by student loan debt breathed a sigh of relief Wednesday.
Delivering on a key campaign promise, President Joe Biden announced he would cancel at least $10,000 in student loan debt for millions of borrowers, as well as $20,000 to Pell Grant recipients. The move comes months before the midterm elections, where Democrats are hoping to energize young voters.
Biden, who made the move using executive authority, said the cost of a college education has become exorbitant.
“That ticket has become too expensive for too many Americans,” Biden said during remarks from the White House’s Roosevelt Room. “The burden is so heavy that even if you graduate, you might not have the ticket that graduating college once offered.”
Biden held off making a final decision for months amid pressure from fellow Democrats, unions and other liberal groups pushing him to cancel at least $50,000 in student loan debt. His move to target $10,000 as a baseline mostly won praise from the left but also pushback from activists seeking more.
But questions remain about how the relief will impact the economy — a point that has drawn GOP attacks. Many Republicans have slammed the debt cancellation plan as an elitist ploy to help the rich and punish hard-working Americans who paid off their student loan debts.
Here’s what we know:
- How much will be forgiven? Up to $20,000 in debt relief for people who have been low-income Pell Grant recipients; $10,000 for all other borrowers with incomes less than $125,000 or from households earning $250,000 or less.
- How many borrowers will be affected? Up to 43 million borrowers are set to receive some form of relief. Roughly 20 million will have their balances canceled entirely.
- Inflation watch: Corporate America had a mixed reaction to the president’s plan. Some economists have said forgiveness could spark inflation and put pressure on the value of the dollar — a concern the White House has dismissed.
- Stampede for information: Shortly after the announcement, the U.S. Education Department site for handling inquiries about the program was experiencing a high volume of traffic.
Why the White House won’t say how much loan forgiveness will cost
White House officials said they could not put a price tag on the loan forgiveness program in part because they don’t know how many eligible borrowers will apply for relief.
“Realistically, we’re not going to get to 100%. But the question is, how far short of 100% are we going to be?” said Bharat Ramamurti, deputy director of the National Economic Council.
In addition, the amount of money the government expects to collect on outstanding debt in the future fluctuates based on economic conditions and other factors. If a borrower was never going to repay the $10,000 that will now be forgiven, Ramamurti said, then “it’s not reasonable to say that the cost of that is $10,000, because we were not realistically going to collect anywhere close to $10,000 from it.”
The administration also wants to factor in the economic benefits it says will flow from relieving debt burdens. If more people will be able to start businesses or buy a home, that creates new tax revenue which offsets the front-end costs of the program, Ramamurti said.
“The bottom line here is that there’s all these different factors that go into the cost,” he said. “Standing here today, I can’t tell you how all of those are going to shake out.”
– Maureen Groppe
The Education Department will keep an eye on whether schools raise their tuition in expectation that changes to the loan program will make it easier for students to take on more debt, White House officials said.
“This is something the Department of Education is aware of,” White House press secretary Karine Jean-Pierre told reporters. “This is something that we’re monitoring.”
Susan Rice, Biden’s domestic policy adviser, said too many colleges have jacked up prices while making wild promises about how much students can earn after getting a degree. She said the Education Department will publish annually a list of institutions that are “the worst actors.”
Rice also emphasized that the 2021 coronavirus relief package included both state and local funding, as well as money targeted to higher education, that she said should be used “to make sure that public institutions don’t increase their tuition and expenses greater than the rate of inflation.”
– Maureen Groppe
Rice said the administration is eager to take on criticisms that loan forgiveness is unfair to some, including people who paid off their loans without help or found other ways – such as military service – to finance their education.
“This is a debate we are happy to have,” she said.
Rice said everyone in the nation benefits when the middle and working class do well. This relief will be targeted to those who need it most, she said.
People who paid off their loans deserve credit for doing so, she added.
“That’s fantastic,” she said. “But that doesn’t mean that because some were able to do so, nobody should help those who weren’t.”
– Maureen Groppe
Sen. Elizabeth Warren, D-Mass., and other progressive Democrats had been pushing Biden for months to cancel up to $50,000 in debt per borrower. If she was disappointed with Biden’s announcement, however, she didn’t show it.
“The cancellation the president is offering is historic,” Warren said. “It will be life changing for tens of millions of people. I will keep pushing to raise the numbers, but we need to pause for a minute to recognize just how powerful the president’s announcement today is.”
Warren also gave credit to Biden for limiting how much borrowers will have to pay on their loans through income-driven repayment plans. Ultimately, she said the debt cancellation is a bet on the country’s future.
“This is America saying that our people, even people who don’t have a lot of money, are our best investment,” she said. “And we’re just going to keep right on investing. I love it.”
– Chris Quintana
Congressional Republicans attacked President Joe Biden’s decision to forgive up to $20,000 in student loans as a giveaway to the left wing of the Democratic party.
House Minority Leader Kevin McCarthy called Biden’s plan a “debt transfer scam,” charging that Americans who have already paid their debts will be forced to foot the bill for the forgiven loans.
Senate Minority Leader Mitch McConnell described the move as a “slap in the face” to Americans who chose not to go to college or already paid their debt.
“This is the one consistent thread that connects Democrats’ policies: Taking money and purchasing power away from working families and redistributing it to their favored friends.”
Senator John Barrasso of Wyoming, chairman of the Senate Republican Conference, called the move “an insult to every American who played by the rules and worked hard to responsibly pay off their own debt.”
“Once again, the Biden administration is selling out working families to appease the far-left wing of the Democrat party,” Barrasso said in a statement.
The Republican National Committee said the decision will immediately increase inflation while costing taxpayers $300 billion.
– Maureen Groppe and Ella Lee
Biden said he is going to continue to fight to double the Pell Grant. “I didn’t get that done this time,” he said.
He added that his announcement on relief is “about opportunities.”
“It’s about giving people a fair shot,” he said. “It’s about the one word America can be defined by, possibilities. It’s all about providing possibilities.”
– Rebecca Morin
Biden also introduced a plan for paying back loans based on discretionary income.
Discretionary money is what’s left after paying taxes and necessary cost-of-living expenses. It’s different from disposable income, which is simply the amount left after paying taxes.
Knowing what discretionary income is important because many federal student loan repayment plans are income-driven and have payments that are based on discretionary income.
“It’s a game changer,” Biden said.
– Ella Lee and Medora Lee
Biden said debt relief is ‘economically responsible’
Biden said the relief to some student loan borrowers is “an economically responsible course.”
“As we provide targeted relief, we’re taking an economically responsible course,” Biden said, pushing back on concerns of how the relief will impact inflation.
“Independent experts agree that these actions taken together will provide real benefits for families without meaningful effect on inflation,” Biden said.
– Rebecca Morin
Biden said the moratorium on student loan payments will be extended one last time to Dec. 31.
“We’ve wound down pandemic relief programs like the ones, unemployment insurance and small businesses. It’s time we do the same thing for student loans,” Biden said. “It’s time for the payments to resume.”
– Kenneth Tran
Biden announced three key components of his student loan relief plan: an extension on the student loan moratorium to Dec. 31, the cancellation of $20,000 in debt for Pell Grant recipients and $10,000 for other borrowers and “fixing the student loan system itself.”
“All this means people can finally crawl out from under that mountain of debt, to get on top of their rent and utilities, to finally think about buying a home or starting a family or starting a business” Biden said. “When this happens, the whole economy is better off.”
– Ella Lee
Some education advocates are saying they want to see more from the Biden administration to address future student loan debt.
While the National Parents Union, an education policy advocacy group, praised the Biden administration for taking steps to cancel student loan debt, “there is still much work to be done.”
“Canceling $10,000 in student loan debt merely puts a Band-Aid on the real problem of reforming the system that has landed us in this mess — and within years we will be right back at the same point,” they said.
The group noted that the average debt is $12,000 for a borrower who is white. However, Black women on average have more than $52,000 in debt.
“While this will take some of the immediate burden away from many families, addressing those inequitable conditions, including the lack of generational wealth and additional support resources that many are forced to make up for through additional borrowing, we have not seen enough to address the underlying inequity of these systems that perpetuate economic inequality,” the group said.
The group said they want to see lawmakers make college more affordable and accessible.
Braxton Brewington, spokesperson for the Debt Collective, a group that has organized demonstrations calling for total student loan debt cancellation, said today’s action was a first step worth celebrating but it fell “short of what economic and racial justice demands.”
“The even better news is that Biden’s authority to cancel student debt doesn’t disappear after one executive use — he can and should simply cancel more student debt, which would boost the economy, narrow the racial wealth gap and grant real financial freedom to communities across the country for whom $20,000 or $10,000 of cancelation offers little relief,” Braxton said.”
– Rebecca Morin and Chris Quintana
Pell Grants at 50: Loss of buying power has Congress rethinking ways of paying for college
Who will be affected?
According to the Education Department, about 90% of those receiving relief, and who aren’t in school, make less than $75,000 a year.
Among eligible borrowers, 21% are 25 or younger and nearly half are between the ages of 26 and 39. More than a third are over 40, including 5% of whom are senior citizens.
– Chris Quintana
Corporations and the wider market have had mixed reactions to Biden’s student loan forgiveness plan. Backers of the move see it as a smart way to give consumers more money to buy homes and goods. Other market watchers are concerned that investors would see negative stock portfolios if the economy shrinks in response to wiped out loan debt.
If forgiveness sparks more inflation, it could also pressure the value of the dollar. The Brookings Institution has calculated that a $10,000 reprieve would add up to a wipeout of debt larger than many social safety nets combined, including WIC, SNAP and federal school lunch plans.
– Riley Gutiérrez McDermid
The Education Department is proposing to halve the monthly payments for some borrowers from 10% to 5% of discretionary income — the amount that borrowers have to pay each month on their undergraduate loans. The proposal also would raise the amount of income considered “nondiscretionary” — which means it’s protected from being used for repaying loans.
For some types of loan repayment plans, balances would be forgiven after 10 years of payment instead of 20. And, the rule would fully cover the borrower’s unpaid monthly interest, so a borrower’s loan balance wouldn’t grow if they are making required payments.
The department said the proposal will be published in the near future in the Federal Register and open for comments for 30 days.
– Nirvi Shah
Education Department: Millions of borrowers’ student loans will be forgiven automatically
The Education Department said nearly 8 million borrowers are likely to get their loan forgiven automatically because the agency already has information about their income.
More details will be coming in the next few weeks.
Other borrowers will have to apply for loan forgiveness, and the applications will be available “no later” than when the freeze on student loan payments ends later this year.
– Chris Quintana
The mass cancellation of student loans is unprecedented in the nation’s history of student borrowing — but there has been little precedent in the student loan landscape for more than two and a half years.
At the onset of the coronavirus pandemic, then-President Donald Trump paused student loan payments, set interest rates at zero percent and stopped collection attempts on overdue debts. Both Trump and Biden extended the moratorium multiple times. The most recent extension was April 6, less than 30 days before payments had been scheduled to start in May. It was set to expire Aug. 31, with some borrowers getting notices that were later retracted about payments resuming Sep. 1.
The administration already has erased roughly $32 billion in student debt for 1.6 million borrowers by widening the eligibility requirements for pre-existing relief programs. It cleared the debt of those who attended predatory colleges and the permanently disabled. It also has canceled more than $10 billion in student debt for those working in the public sector.
Biden’s latest plans mean forgiving billions more in student loan debt for millions of borrowers, eclipsing the administration’s past actions. Yet millions of Americans will be left with student loan debt, especially those who pursued advanced degrees or had less financial support from their families or scholarships to pay for college.