Biden wipes out $10K student debt for those earning under $125K
President Biden announced today that he will cancel up to $10,000 in student debt for Americans earning less than $125,000 per year (or $250,000 for couples filing taxes jointly) with additional relief for borrowers from low-income backgrounds who received Pell Grants. He will also extend the current pause on student loan payments, slated to end Sept. 1, for an additional four months, through Dec. 31.
“In keeping with my campaign promise, my administration is announcing a plan to give working and middle-class families breathing room as they prepare to resume federal student loan payments in January 2023,” Biden said on Twitter.
Further details are expected later this afternoon.
The announcement marks an unprecedented act of executive authority and will be the first broad-based debt cancellation effort in history. It comes after months of deliberation from the administration amid cancellation’s possible implications for the upcoming midterm elections in November, and fears that it could worsen inflation. Officials from the White House said in a call with reporters today that they believe that debt relief would have a neutral impact on inflation, since borrowers have not been obligated to make payments on their loans since the Trump-era payment pause begin in March 2020.
Federal loans awarded after July 1, 2022, including graduate and Parent PLUS loans, will be eligible for forgiveness. Students included as dependents are eligible if their parents’ household income is under $250,000.
“Earning a college degree or certificate should give every person in America a leg up in securing a bright future. But for too many people, student loan debt has hindered their ability to achieve their dreams—including buying a home, starting a business, or providing for their family. Getting an education should set us free; not strap us down! That’s why, since Day One, the Biden-Harris administration has worked to fix broken federal student aid programs and deliver unprecedented relief to borrowers,” Education Secretary Miguel Cardona said in a statement.
Of the 45 million Americans with student loan debt, 90 percent of the debt relief from today’s announcement will go to individuals earning less than $75,000 a year.
Pell Grant recipients will be eligible for up to $20,000 in student debt relief. This will provide additional relief to individuals from low-income backgrounds. Pell recipients have an average of $4,500 more in student debt than other graduates, according to an analysis of data from the Education Department.
For some borrowers, the cancellation will not be automatic. The Education Department only has income information for around eight million borrowers who are enrolled in income-based repayment plans or other programs that require them to submit information on their income. Other borrowers will have to submit an application, which White House officials said the Education Department will release more information on that in the “coming days and weeks.”
Some Democrats and civil rights groups, such as the NAACP, have been pushing Biden to go further in order to address racial and economic disparities (Black borrowers hold an average of $25,000 more in student loan debt than white borrowers). Just last night, Senate Majority Leader Chuck Schumer of New York had called Biden, asking him to cancel as much debt as possible, according to recent reporting.
Biden also announced a new income-driven repayment proposal that will cap repayment for all undergraduate loans at 5 percent of an individual’s monthly income; the current level is 10 percent. Borrowers with both undergraduate and graduate debt will pay a weighted-average rate.
The new IDR plan will also fully cover a borrower’s unpaid monthly interest and allow them to have their debts forgiven after 10 years, as opposed to 20, for borrowers with balances under $12,000.
In conjunction with the announcement on student loans, the Education Department released a legal memorandum that details the authority of the president to cancel student loan debt. Republicans have long challenged Biden’s authority to cancel student loan debt via executive action, as he did today. The memorandum states that the Higher Education Relief Opportunities for Students Act of 2003 grants the education secretary the legal authority to “effectuate a program of targeted loan cancellation directed at addressing the financial harms of the COVID-19 pandemic.”