Student loan forgiveness could help more than 40 million Americans
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.
Fulfilling a campaign promise, Biden is erasing $10,000 in federal student loan debt for those with incomes below $125,000 a year, or in households that earn less than $250,000. He’s canceling an additional $10,000 for those who received federal Pell Grants to attend college.
The effort is 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.
Republicans quickly denounced the plan as an insult to Americans who have repaid their debt and to those who didn’t attend college. Critics across the political spectrum also questioned whether Biden has authority for the move, and legal challenges are virtually certain.
Trey Barkley is still paying off his tens of thousands of dollars in debt from his time studying at the Art Institute of San Diego back in the mid-2000s.
He was hoping for more.
“The $10,000 is kind of a joke given just the sheer interest on most accounts anyway for this. Ten thousand dollars doesn't even cover one year of interest. It's such an arbitrary number too, it's like if you can do 10,000 why can't there be more?" the San Diego resident said.
UC San Diego Political Science Professor Thad Kouser said the timing of this effort could help Biden’s low approval rating, and the upcoming midterm elections.
“There are Republicans who are criticizing this as a giveaway to the college educated, it doesn't do anything for the blue-collared workers and it's something that might lead to further inflation. So he's going to face some attacks on the far-left and the right but his hope is that enough moderate voters and especially enough young voters will be pleased with this package and remember come November," Kousser said.
Biden 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.
Even after he gets his $10,000, Barkley said he’s still going to defer his student loan payments.
“There is no possible way to catch up with any amount really under 30,000. And really under 50,000 for sure. 50,000 would cover, to me, what has been accrued and been charged over the years for a lot of people," he said.
Most people will need to apply for the relief. The Education Department has income data for a small share of borrowers, but the vast majority will need to prove their incomes through an application process. Officials said applications will be available before the end of the year.
Biden’s plan makes 43 million borrowers eligible for some debt forgiveness, with 20 million who could get their debt erased entirely, according to the administration. About 60% of borrowers are recipients of federal Pell Grants, which are reserved for undergraduates with the most significant financial need, meaning more than half can get $20,000 in relief.
The plan doesn’t apply to future college students, but Biden is proposing a separate rule that would reduce monthly payments on federal student debt.
The proposal would create a new payment plan requiring borrowers to pay no more than 5% of their earnings, down from 10% in similar existing plans. It would forgive any remaining balance after 10 years, down from 20 years now.
It would also raise the floor for repayments, meaning no one earning less than 225% of the federal poverty level would need to make monthly payments.
As a regulation, it would not require congressional approval. But it can take more than a year to finalize.