Millions of Americans would see their student-debt load lightened by $10,000 each under a plan unveiled by President Biden on Wednesday, ending months of speculation about whether and how he would keep a campaign promise to help borrowers. The president also extended the pandemic-era pause on federal student-loan repayments for the last time, saying they would resume in January instead of in September.
The long-awaited plan for student-loan forgiveness would be restricted to individuals earning under $125,000 per year and families earning under $250,000 per year. Most borrowers within the income limit would be eligible to have up to $10,000 in loans forgiven; Pell Grant recipients could see up to $20,000 in federal student debt canceled.
“All this means people can start to finally crawl out from under that mountain of debt, to get on top of their rent and their utilities, to finally think about buying a home or starting a family or starting a business,” Biden said in remarks at the White House. “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 would continue to fight to double the maximum Pell Grant.
Among the student-loan borrowers who had been eagerly waiting for the announcement was Lujain Al-Khawi, 25, 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 her college years but still had to take out $50,000 in public and private loans to cover her expenses. She expects the loan-forgiveness plan will wipe out the $6,000 in public loans she has remaining, although she still owes money on her private loans and is now borrowing more to cover the cost of a master’s degree at the Johns Hopkins University, which she is 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 have worked while studying, I couldn’t pay it off because of living expenses,” Al-Khawi said. “I’m very excited about the news today.”
An estimated 45 million people hold about $1.7 trillion in student-loan debt in the United States. The Biden administration estimates its plan will cancel the full remaining balance for about 20 million borrowers.
Some critics argue that student-loan forgiveness is unfair to those who never took out loans or who have paid them off already. Some advocates contend that a one-time canceling of student loans does nothing to solve the underlying problem of college affordability. In his remarks on Wednesday, Biden talked about how many states have cut support for public colleges, leaving students and families to pick up the tab. Pell Grants once covered 80 percent of the cost of a degree from a public four-year college, he said; today, they cover about one-third the cost.
Sen. Mitch McConnell of Kentucky, the chamber’s Republican leader and a longtime opponent of student-loan cancellation, said the plan would largely benefit wealthier Americans. “President 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, and every American who chose a certain career path or volunteered to serve in our armed forces in order to avoid taking on debt,” McConnell said in a written statement. “This policy is astonishingly unfair.”
An Onslaught of Questions
Some advocates on the left, by contrast, argued for more debt relief. NAACP leaders, for example, had previously urged Biden to cancel $50,000 in debt per borrower, saying that amount would drastically reduce the racial wealth gap. The group’s president, Derrick Johnson, said on Wednesday that offering up to $20,000 in debt relief for some borrowers “takes us one step closer to the NAACP’s ultimate goal of alleviating the burden of student debt. We’ve got a ways to go, but the NAACP is proud that we were able to push President Biden to exceed $10,000, bringing us closer to $50,000 and beyond.”
Dominique J. Baker, an assistant professor of education policy at Southern Methodist University, said the student-loan cancellation would make a real difference for borrowers. “This will help people be more mobile in where they want to live. This will help people have more say over the jobs they want to take and the decisions they want to make in their lives,” she said.
Still, Baker said, more work remains to be done.
“I’m very happy for the people seeing relief from this,” she said. “And I want us to keep doing work, to continue reforming our system to make college actually be affordable, and to continue providing relief.”
The National Association of Student Financial Aid Administrators said it expected its members would receive an onslaught of questions from borrowers about who is eligible for loan forgiveness and how to apply for it. The Education Department said on Wednesday that more details would be released soon.
“A lot of nuances in here will need further clarification, and financial-aid offices live in the nuance,” the association’s president, Justin Draeger, said.
Draeger emphasized that public policy must be carried out effectively in order to achieve its goals. He said that programs with income limits would be more successful if the federal government automated the application process, as it appears the Education Department intends to do for loan forgiveness. The department said it held relevant income data for nearly eight million borrowers who may be eligible to receive relief automatically as a result.
Universal student-loan cancellation once seemed far-fetched but grew in popularity in recent years, particularly among liberal Democrats. As a presidential candidate, Biden pledged to cancel at least $10,000 in loans for each borrower.
Biden appears to be trying to court younger voters — among whom his approval ratings have dropped — in time for the midterm elections. But it’s not clear whether the move will be a political win over all. One poll of Americans ages 18 to 29 found that while 85 percent favored some kind of government action on student-loan debt, only 38 percent advocated total debt cancellation. More recently, some critics have asked whether student-loan forgiveness could worsen inflation.
Still to be resolved is whether the president has the legal authority to cancel debt through executive action. The Democratic speaker of the House of Representatives, Nancy Pelosi, for example, previously said the president lacks the authority to unilaterally cancel student-loan debt. The Education Department on Wednesday released a legal memorandum, dated August 23, 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, issued by the Trump administration and arguing the opposite, “was substantively incorrect in its conclusions.”
Opponents of the loan-cancellation plan are likely to challenge it in court, although it is unclear who will have legal standing to file 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 challenge worked its way through the court system. That would make it very difficult to order borrowers to resume payments or to pay back any loans that they believed had been discharged.
The department also announced on Wednesday that it would create a new income-driven repayment plan to reduce the amount of discretionary income borrowers must pay back each month on undergraduate loans, from 10 percent to 5 percent. Under that plan, borrowers would be forgiven loan balances after 10 years of payments, instead of the 20 years currently required under many income-driven repayment plans, for borrowers with original loan balances of $12,000 or less. Also under the plan, loan balances would not grow while borrowers were making required monthly payments. The department is also proposing changes in the Public Service Loan Forgiveness program, to make it easier for those working in public service to have their loans forgiven.
