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Biden’s Student Loan Forgiveness Plan, Explained

President Joe Biden announced a plan on Wednesday that will forgive $10,000 in student loans for people earning less than $125,000 a year. Predictably, there has been a pushback on the right, with Fox News derisively calling it a “handout” and Republican lawmakers threatening to try to block the move.

Meanwhile, just about everyone is disappointed with the plan for not going far enough. $10,000 is barely a drop in the bucket of most people’s student debt, which comes with interest rates out of control, especially in these current times of massive inflation.

What Biden’s Executive Order Does

The part of Biden’s plan that gets the most attention is that $10,000 rebate, which gives an additional $10,000 to anyone who meets that income threshold and who also received a Pell Grant, which goes almost exclusively to students from families earning less than $60,000 per year.

He’s also extending the pause on student loan repayments through the end of the year, for what Biden calls “one last time.” Additionally, the Department of Education has a new income-based plan to halve monthly undergraduate loan payments and also aims to fix the “broken” civil service loan forgiveness program to cancel a debt for anyone who has worked in a nonprofit organization, in the military, or in federal, state, tribal, or local government. There are also kind but far less tangible words about wanting to make college more affordable and having to “strengthen accountability.”

What Biden’s Plan Doesn’t Do

Obviously, the most notable thing missing from Biden’s plan is total debt cancellation, which is what just about everyone who doesn’t buy into that “I’ve been struggling” mindset wants. so that everyone has to struggle” which is so pernicious. It also does not appear to offer assistance to anyone above the income threshold. There are also other restrictions that exclude those with an original loan balance of more than $12,000, including a proposal to forgive all debt after 10 years instead of the current 20.

So many student loans come with such high predatory interest rates that a person’s debt can grow even if they make regular payments on their principal. The new income-based repayment plan proposed by the Department for Education claims to “cover the borrower’s unpaid monthly interest”, but it is unclear to which borrowers this actually applies.

Student debt is also a racial justice issue, as black families, and especially black women, are disproportionately affected. The White House fact sheet for this plan states:

Black students are more likely to have to borrow for school and more likely to take out larger loans. Black borrowers are twice as likely to have received Pell Grants as their white peers. Other borrowers of color are also more likely than their peers to receive Pell Grants. That’s why an Urban Institute study found that debt forgiveness programs targeting those who received Pell Grants while in college will advance racial equity.

Canceling student debt is seen as an important step in closing the racial wealth gap. But $10,000 doesn’t seem like a big enough amount to make a big difference. The ACLU recommends setting aside at least $50,000 to have a meaningful impact, and even that would leave millions with existing debt.

The ACLU wrote last year:

The Center for Responsible Learning argues that the federal government should improve repayment by: (1) eliminating bad debt accounts, such as debts that have been in repayment for more than 15 years; (2) restore limits on collections and make student debt dischargeable in bankruptcy; and (3) make repayment truly affordable and budget-friendly with a new income-focused repayment plan open to all borrowers.

Will Biden cancel all student loan debt?

Many people are under the impression that Biden’s $10,000 handover is that he is reneging on his campaign promise to cancel all student debt. But did he really promise it? Well, a little.

$10,000 has always been Biden’s plan. He said it in town halls and on Twitter during his campaign. He also included it in an article published on Medium in April 2020, titled “Joe Biden Outlines New Measures to Ease Economic Burden on Workers.” Since then, calls for Biden to forgive all of his debts have been met with smug and reprimanding headlines from business media such as “No, Biden didn’t promise to forgive your student loans” (thank you, Forbes) and “Why didn’t Joe Biden forgive all your student loan debt? Short answer: he never promised to” (from money.com).

So while Biden was consistent with his pledge to provide $10,000 in debt relief (borrowed from a plan proposed by Elizabeth Warren, obviously), there are two points worth noting that people have every right to push him.

First, Biden’s promise wasn’t just a $10,000 discount. He promised immediate forgiveness, like first-day forgiveness. Here we are, 600 days later, and he’s finally gotten to it. People are right to be upset about this, especially considering point #2.

These reprimanding headlines are actually false. Biden did promise to forgive any debt, at least once, in this Medium room. There he wrote that in addition to his $10,000 plan, he offered to cancel all undergraduate debt for people earning less than $125,000. The caveat is that he explicitly said it would happen “with appropriate phasing out to avoid a cliff”.

So Biden was never going to cancel student debt all at once, and $10,000 was always going to be the first step towards complete cancellation. That’s why it’s particularly frustrating that the first step took so long when we were repeatedly told it would be immediate.

How to Apply for Student Loan Forgiveness

What shall we do now? Biden’s plan is basically guaranteed to face legal challenges from angry Republicans, but if it sticks, and in the meantime, the Education Department will launch an app ‘in the coming weeks’ . You can sign up to receive alerts on the agency’s subscription page here.

(photo: Alex Wong/Getty Images)

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