The US president will announce the move on Wednesday, according to senior administration officials, after months of debate over the exact structure of the debt relief scheme. Biden suspended most student loan repayments during the coronavirus pandemic, but has come under pressure from many on the left of his party to cancel a large chunk, if not all, for good. But some economists have warned that doing so could add further fuel to the country’s already high inflation rates. The plan to be announced Wednesday includes canceling $10,000 in payments for anyone earning less than $125,000. Those who receive Pell grants, which are given to those with special financial need, will qualify for $20,000 worth of forgiveness. The moratorium on all payments, which had been in place during the pandemic, will be extended until the end of the year and borrowers will not have to repay more than 5 percent of their income each month. Biden tweeted: “True to my campaign promise, my administration is announcing a plan to give working and middle-class families some breathing room as they prepare to resume federal student loan payments in January 2023.” A senior administration official added, “A post-secondary education should be a ticket to a middle-class life, but for too many the cost of borrowing for college is a lifelong burden that robs them of that opportunity.” American consumers hold about $1.6 trillion in outstanding student debt and it can take decades, especially in minority communities, to complete their repayments. Many on the left of the party wanted the president to go further. Elizabeth Warren, the Democratic senator from Massachusetts, has called for student debt forgiveness for years and promised during her failed 2020 presidential bid to write off $50,000 for 95 percent of borrowers. But Warren welcomed Wednesday’s announcement, saying in a statement: “Millions of working people will have the opportunity to build a more secure financial future because of President Biden’s decision to cancel student debt.” Shares in fintech lender SoFi rose 8 percent to $6.58 after the news, indicating investor relief that the plan was smaller in scale than expected. Student loan refinancing accounted for about 60 percent of the bank’s loan portfolio before the pandemic, and its stock has fallen 58 percent so far this year. But Marc Goldwein, the senior policy director at the Committee for a Responsible Federal Budget, a conservative think-tank, has estimated that the debt write-off would almost completely eliminate the deflationary impact of the recently passed deflationary law.

The administration believes the inflationary impact will be minimal because while many will have some of their debt written off, they will also have to restart payments on the balance for the first time since the pandemic. A senior official said: “There are certain conditions and cases under which [this move] it could well be neutral or deflationary’. Additional reporting by Imani Moise in New York