Washington – President Biden said Wednesday he was taking steps tofor millions of Americans and an additional $10,000 for low-income borrowers while extending a pause on monthly payments, delivering long-awaited relief just weeks before the midterm elections.
Under the plan, borrowers earning less than $125,000 a year, or less than $250,000 a year as a couple, will be eligible for loan forgiveness of up to $10,000. Recipients of Pell grants, which are reserved for students with the greatest financial need, are eligible for additional relief of $10,000.
“An entire generation is now saddled with unsustainable debt in exchange for at least trying to get a college degree,” Mr. Biden said in a speech at the White House. “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.”
Current students will also be eligible for debt relief, although prospective students will not, according to senior administration officials who explained details of the plan during a call with reporters. Undergraduate loan repayments will also be capped at 5% of monthly income.
Mr Biden said about 43 million borrowers will benefit from the debt forgiveness portion of his plan. About 60% of these borrowers are Pell Grant recipients and therefore eligible for the $20,000 forgiveness, and 90% are from households earning less than $75,000 a year. Mr Biden said nearly 20 million people will have their debt canceled entirely.
The president is also postponing student loan repayments until the end of the year, and the Department of Education and the president have said this will be the last time the pandemic-era hiatus will be extended.
The Department of Education said almost 8 million borrowers will have their debt canceled automatically, while others will have to seek relief. The Department of Education will provide a short application to borrowers seeking debt relief in the coming weeks, Biden said. The Department of Education says borrowers can sign up to be notified when the app is available.
The income caps will be based on 2020 or 2021 income. If an individual or couple’s income was below the cap in either year, they will be eligible, said a senior administrative official.
The decision to cancel student debt follows months of internal White House deliberations over the feasibility and cost of the operation. Mr. Biden has made canceling student loans one of his top priorities during his presidential campaign, and Democrats have been pushing the administration to keep his promise. Republicans have said Mr Biden lacks the power to cancel the debt and his plan is certain to face a barrage of legal challenges.
In anticipation of upcoming legal battles, the Ministry of Education posted a note from General Counsel Lisa Brown with a legal rationale for Mr. Biden’s actions. Brown cited a 2003 law known as the HEROES Act, which she said gives the secretary of education broad authority over student aid programs during a time of national emergency.
“Under current circumstances, this authority could be used to implement a categorical debt cancellation program aimed at addressing the financial damage caused by the COVID-19 pandemic,” Brown wrote. “The Secretary may waive or modify statutory and regulatory provisions to effect a certain amount of forgiveness for borrowers who have been financially harmed due to the COVID19 pandemic.”
An analysis of Penn Wharton’s budget model concluded that forgiveness of $10,000 in student loan debt for those earning up to $125,000 a yearin the first year. It also found that more than two-thirds of debt cancellation would help Americans in the top 60% earners.
Addressing the cost of the plan, Mr Biden pointed to past deficit reduction efforts, saying the money exists to pay for the program “many times over”. He said he will “never apologize for helping Americans, working Americans and the middle class.”
But low-income Americans who have never attended college and who are struggling financially amid record inflation will not benefit from any debt forgiveness, critics of student debt forgiveness point out. Nor would wiping out some student loan debt solve the rising cost of a college education, which has historically outpaced inflation in recent decades.
Senior administration officials on the call with reporters argued that any impact on inflation by canceling student debt would be “largely offset” by the resumption of student loan repayments.
The pause in student loan repayments began under the Trump administration at the start of the pandemic, and Mr Biden has suspended student loan repayments a total of four times since taking office. With interest rates set at zero, the pause has saved federal borrowers more than $1.5 billion each month, according to an april report of the Financial Health Network.
Steven Portnoy and Kristin Brown contributed to this report.