President Joe Biden on Wednesday announced that his administration will eliminate $10,000 in federal student loan debt for millions of borrowers. While the topline number was largely as expected, Biden’s student debt relief plan includes additional elements, some of which came as a surprise. Here’s an overview of the plan:
• Forgiveness of up to $10,000 in federal student loan debt for borrowers making less than $125,000 per year, with an income limit of $250,000 per year for couples filing taxes jointly.
• Borrowers who received Pell Grants will be eligible for up to $20,000 in debt forgiveness, with the same income limits. (Pell Grants “usually are awarded only to undergraduate students who display exceptional financial need and have not earned a bachelor’s, graduate, or professional degree,” according to the U.S. Department of Education. Most grants go to students from households earning less than $60,000 per year.)
• The suspension of payments on student loans will be extended “one final time,” the White House said, lasting until the end of the year, with payments starting up again in January 2023.
• The Biden administration says that nearly 90% of debt relief will go to people earning less than $75,000.
• About 20 million borrowers could see their student loan debts eliminated completely, with as many as 43 million borrowers benefitting to some degree. According to The Washington Post, 33% of borrowers owe less than $10,000 on their student loans, while a bit more than half (53%) owe less than $20,000.
• The Biden administration is also proposing new loan repayment rules that cap a borrower’s payments at 5% of discretionary income, while reducing the amount of income available for repayment. The administration also wants to forgive loan balances after 10 years of payments, rather than 20 years, for borrowers with loan balances of $12,000 or less.
Biden sells his plan: In remarks delivered at the White House, Biden said he was acting to help the average citizen. “Education is a ticket to a better life. ... but over time that ticket has become too expensive for too many Americans," he said. “All this means that an entire generation is now saddled with unsustainable debt in exchange for an attempt, at least, at a college degree. The burden is so heavy that even if you graduate you may not have access to the middle-class life that the college degree once provided.”
Biden also said he is aware that the plan has harsh critics. “I understand not everything I'm announcing is going to make everybody happy," he said. “Some think it's too much — I find it interesting how some of my Republican friends who voted for [the 2017 Trump] tax cuts think we shouldn't be helping these folks. Some think it's too little, but I believe my plan is responsible and fair. It focuses the benefit on middle-class and working families, it helps both current and future borrowers and it'll fix a badly broken system.”
Critics decry cost: Budget analysts estimate that canceling $10,000 worth of debt for those earning less than $125,000 will cost the federal government about $300 billion over 10 years; estimates for the cost of eliminating additional debt for Pell Grant recipients are not yet available. But deficit hawks don’t like what they’re seeing in any event.
“This announcement is gallingly reckless – with the national debt approaching record levels and inflation surging, it will make both worse,” Maya MacGuineas of the Committee for a Responsible Federal Budget said in a statement. “Policymakers have already spent $300 billion on student debt relief—none of it paid for, and this would add another $400 to $600 billion, again, none of it paid for. This action by the White House is completely at odds with their talk of deficit reduction. … With the stroke of a pen, the president undid a year's worth of work on the fiscal front.”
Meanwhile, Republicans condemned Biden’s plan in no uncertain terms. “Biden’s student loan socialism is a slap in the face to every family who sacrificed to save for college, every graduate who paid their debt, & every American who chose a certain career path or volunteered to serve in our Armed Forces … to avoid taking on debt,” said Senate Minority Leader Mitch McConnell (R-KY).
Biden defended the fiscal impact of his plan, saying “the whole economy is better off” because of it and that the plan would be paid for by previous deficit savings.
“By resuming student loan payments at the same time we provide targeted relief, we're taking an economically responsible course,” he argued. “As a consequence, $50 billion dollars a year will start coming back into the Treasury because of the resumption of debt” payments, he said. “There is plenty of deficit reduction to pay for the programs ... many times over,” he added, referring to the long-term deficit reduction included in the recently enacted Inflation Reduction Act. “I will never apologize for helping working Americans ... especially not to the same folks who voted for a $2 trillion tax cut that mainly benefited the wealthiest Americans.”
