Millions of Americans would see their student debts relieved by $10,000 each under a plan unveiled by President Biden on Wednesday, ending months of speculation over whether and how he would deliver on his election promise. help borrowers. The president also last extended the pandemic-era pause on federal student loan repayments, saying they would resume in January instead of September.
The long-awaited student loan forgiveness plan would be limited to people earning less than $125,000 a year and families earning less than $250,000 a year. Most borrowers within the income limit would qualify for loan forgiveness of up to $10,000; Pell Grant recipients could see up to $20,000 in federal student debt forgiven.
“All of this means that people can finally start crawling under this mountain of debt, get their rent and their utilities under control, finally think about buying a house or starting a family or starting a business,” Biden said in remarks. to the White House. “An entire generation is now saddled with unsustainable debt in return for at least trying to get a college degree. The burden is so heavy that even if you graduate, you may not have access to the middle-class life that a college degree once provided.Biden also said he will continue to fight to double Pell’s maximum grant.
Among student borrowers eagerly awaiting the announcement, 25-year-old Lujain Al-Khawi, who lives near Washington, D.C. Al-Khawi received a merit scholarship to study engineering at George Washington University and worked 20 to 30 hours a week. throughout his college years, but still had to take out public and private loans of $50,000 to cover his expenses. She expects the loan forgiveness plan to eliminate the $6,000 in public loans she has left, even though she still owes money on her private loans and is now borrowing more to cover the cost of a master’s degree at Johns Hopkins University, which she’s earning while working full-time as an algorithm engineer at a medical device company.
“I took out this public loan in 2015; it’s been almost seven years. Even though I worked during my studies, I couldn’t pay because of living expenses,” Al-Khawi said. “I’m very excited about today’s news.”
An estimated 45 million people hold about $1.7 trillion in student loan debt in the United States. The Biden administration estimates that its plan will cancel the entire remaining balance for about 20 million borrowers.
Some critics argue that student loan forgiveness is unfair to those who have never taken out loans or who have already repaid them. Some advocates argue that a one-time cancellation of student loans does nothing to solve the underlying problem of college affordability. In his remarks on Wednesday, Biden explained how many states have cut support for public colleges, leaving students and families to foot the bill. Pell grants once covered 80% of the cost of a four-year public college degree, he said; today they cover about a third of the cost.
Sen. Mitch McConnell of Kentucky, the House’s Republican leader and longtime opponent of student loan forgiveness, said the plan would largely benefit the wealthiest Americans. “President Biden’s student loan socialism is a slap in the face to every family who has sacrificed to save for college, every graduate who has paid off their debt, and every American who has chosen a certain career path or gone volunteer to serve in our Armed Forces to avoid going into debt,” McConnell said in a written statement. “This policy is surprisingly unfair.”
An avalanche of questions
Some left-wing supporters, on the other hand, argued for more debt relief. NAACP leaders, for example, had previously urged Biden to forgive $50,000 in debt per borrower, saying that amount would significantly narrow the racial wealth gap. Group chairman Derrick Johnson said Wednesday that offering up to $20,000 in debt relief to select borrowers “brings us one step closer to the NAACP’s ultimate goal of easing the burden of student debt. We still have a ways to go, but the NAACP is proud that we were able to push President Biden past $10,000, bringing us closer to $50,000 and beyond.
Dominique J. Baker, assistant professor of educational policy at Southern Methodist University, said student loan forgiveness would make a real difference for borrowers. “It will help people be more mobile where they want to live. It will help people have more of a say in the jobs they want to do and the decisions they want to make in their lives,” she said.
Still, Baker said, there’s still work to be done.
“I’m very happy for people seeing relief,” she said. “And I want us to keep working, to keep reforming our system so that college is actually affordable and to keep providing relief.”
The National Association of Student Financial Aid Administrators said it expects its members to receive a slew of questions from borrowers about who is eligible for loan forgiveness and how to apply for it. The Department of Education said on Wednesday that more details would be released soon.
“A lot of nuance here will require further clarification, and financial aid offices live in nuance,” said association president Justin Draeger.
Draeger emphasized that public policy must be conducted effectively in order to achieve its goals. He said programs with income limits would be more successful if the federal government automates the application process, as it appears the Department of Education intends to do for loan forgiveness. The department said it has relevant income data for nearly eight million borrowers who may be eligible to automatically receive relief as a result.
Universal student loan forgiveness once seemed far-fetched, but has grown in popularity in recent years, especially among liberal Democrats. As a presidential candidate, Biden pledged to forgive at least $10,000 in loans for each borrower.
Biden appears to be trying to woo younger voters — among whom his approval ratings have plummeted — in time for the midterm elections. But it is not clear whether this decision will be a political victory over all. A poll of Americans aged 18 to 29 found that while 85% supported government action on student debt, only 38% favored full debt cancellation. More recently, some critics have questioned whether student loan forgiveness could make inflation worse.
Whether the president has the legal power to cancel the debt through executive action remains to be determined. Democratic House Speaker Nancy Pelosi, for example, has previously said the president does not have the power to unilaterally write off student loan debt. The Department of Education released a legal memorandum, dated Aug. 23, on Wednesday that argues that the Secretary of Education — Miguel A. Cardona, who appeared with Biden at the White House — has such authority. The memo concluded that a previous memo, released by the Trump administration and claiming the opposite, “was substantially incorrect in its conclusions.”
Opponents of the loan forgiveness plan are likely to challenge it in court, although it is unclear who will have the legal capacity to bring suit. Jonathan Fansmith, assistant vice president for government relations at the American Council on Education, said it was likely that relief would have been granted to millions of borrowers by the time any challenges made their way into the judicial system. This would make it very difficult to order borrowers to resume payments or repay loans they believed had been cancelled.
The ministry also announced on Wednesday that it would create a new income-driven repayment plan to reduce the amount of discretionary income borrowers must repay each month on undergraduate loans, from 10% to 5%. Under this plan, borrowers would be forgiven of loan balances after 10 years of payments, instead of the 20 years currently required under many income-driven repayment plans, for borrowers whose original loan balance is $12,000 or less. Also under the plan, loan balances would not increase while borrowers made the required monthly payments. The department is also proposing changes to the Civil Service Loan Forgiveness Program, to make it easier for those working in the civil service to forgive their loans.