More than 40 million Americans could see their student loan debt reduced — and in many cases eliminated — under the long-awaited forgiveness plan announced Wednesday by President Joe Biden, a historic but politically divisive move ahead of the midterm elections. . Fulfilling a campaign promise, Biden is writing off $10,000 in federal student loans for those making less than $125,000 a year or for households earning less than $250,000. Eliminates an additional $10,000 for those who received federal Pell grants to attend college. It’s billed as an unprecedented effort to stem the tide of America’s skyrocketing student debt, but it doesn’t address the larger issue — the high cost of college. Republicans quickly denounced the plan as an affront to Americans who have paid off their debt and those who didn’t go to college. Critics across the political spectrum have also questioned whether Biden has the authority for the move, and legal challenges are almost certain. Biden also extended a pause in federal student loan payments for what he called “the last year.” The pause is now set to last until the end of the year, with repayments resuming in January. “Both of these targeted actions are aimed at families who need it most: working and middle class people are being hit especially hard during the pandemic,” Biden said at the White House on Wednesday afternoon. The cancellation applies to federal student loans used to attend undergraduate and graduate school, along with Parent Plus loans. Current students qualify if their loans were issued before July 1st. For dependent students, their parents’ family income must be under $250,000. Most people will need to apply for the relief. The Department of Education has income information for a small proportion of borrowers, but the vast majority will need to prove their income through an application process. Officials said applications will be available before the end of the year. Biden’s plan makes 43 million borrowers eligible for some debt relief, with 20 million who could have their debt written off entirely, according to the administration. About 60% of borrowers are recipients of federal Pell grants, which are reserved for undergraduate students with the most significant financial need, meaning more than half can receive $20,000 in relief. Sabrina Cartan, a 29-year-old media strategist in New York, expects her federal debt to be completely eliminated. When she checked the balance on Wednesday, it was $9,940. Cartan used the loans to attend Tufts University, and with Biden’s plan she will be able to help her parents repay the extra thousands they borrowed for her education. As a first-generation college student, she called it a “leveling moment.” “I know there are people who think that’s not enough, and that’s true for a lot of people,” said Cartan, who has already paid off about $10,000 of her loans. “I can say for me personally and for a lot of people, it’s a lot of money.” For Braxton Simpson, Biden’s plan is a great first step, but it’s not enough. The 23-year-old MBA student at North Carolina Central University has more than $40,000 in student loans. As an undergraduate she took jobs to minimize her debt, but at $10,000 a semester, the costs piled up. As a black woman, she felt a higher education was a prerequisite to a more stable financial future, even if it meant taking on large amounts of debt, she said. “To escape a lot of situations that were routinely part of our lives, we have to go to school,” Simpson said. “And that’s how we end up in debt.” The plan does not apply to future students, but Biden is proposing a separate rule that would lower monthly payments on federal student debt. The proposal would create a new payment plan requiring borrowers to pay no more than 5% of their earnings, up from 10% in similar existing programs. It would forgive any remaining balance after 10 years, up from 20 years now. It would also raise the threshold for repayments, meaning no one earning less than 225% of the federal poverty level would have to make monthly payments. As a regulation, it would not require congressional approval. But it may take more than a year to complete. Biden’s plan comes after more than a year of deliberation, with the president facing strong lobbying from liberals who wanted sweeping debt relief and from moderates and conservatives who questioned its basic fairness. Once a popular campaign promise during the presidential primaries, the issue has created an almost untenable situation. Some fellow Democrats criticized the plan Wednesday, saying it is too costly and does little to solve the debt crisis. “In my view, the administration should have further targeted the relief and proposed a way to pay for this plan,” said Sen. Michael Bennet, D-Colo. “While immediate relief to families is important, a one-time debt write-off does not solve the underlying problem.” But many Democrats rallied around it, including support from those who wanted Biden to exceed $10,000. “I’m going to keep pushing for more because I think it’s the right thing to do,” said Sen. Elizabeth Warren, D-Mass., who had urged Biden to forgive up to $50,000 per person. “But we have to take a deep breath here and recognize what it means for the president of the United States to touch so many hard-working, middle-class families so directly.” Supporters see the repeal as an issue of racial justice. Black students are more likely to receive federal student loans and in higher amounts than their white peers. The NAACP, which pushed Biden to cancel at least $50,000 per person, said the plan is “one step closer” to lifting the burden of student debt. Derrick Johnson, the group’s president, urged Biden to cancel the debt quickly and without red tape for borrowers. Biden’s decision to impose an income cap has come up against objections from some who say adding the detailed application process to verify incomes could deter some borrowers who need help the most. The Biden administration has defended the cap as a gatekeeper against wealthier borrowers. Politically, it is designed to counter the arguments of critics who call debt relief a handout for the rich. Republicans hit hard with that argument Wednesday despite the cap. “President Biden’s inflation is crushing working families, and his response is to give even more government money to higher-wage elites,” said Senate GOP Leader Mitch McConnell. “Democrats are literally using the money of working Americans to try to buy some enthusiasm from their political base.” One of the main political sticking points was cost: Biden’s new plan, including debt cancellation, a new repayment plan and a payment freeze, would cost between $400 billion and $600 billion, according to the Committee for a Responsible Federal Budget, a non profit organization. which advocates lower deficits. Asked about the cost Wednesday, Susan Rice, Biden’s domestic policy adviser, said: “I can’t tell you.” There are also lingering questions about the administration’s authority to cancel student loan debt. The Justice Department released a legal opinion concluding that the Higher Education Student Opportunity Act gives the Secretary of Education the “authority to reduce or eliminate the principal repayment obligation of federal student loan debt.” The legal opinion also concluded that the pardon could be applied “class-wide” in response to the coronavirus pandemic, a national emergency. However, lawsuits are possible. The Job Creators Network, which promotes conservative economic policies, said it was considering legal options, with president and CEO Alfredo Ortiz calling the president’s effort “fundamentally unfair” to those who never took out college loans. —— AP writers Michael Balsamo and Farnoush Amiri contributed to this report.
In keeping with 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. I’ll have more details this afternoon. pic.twitter.com/kuZNqoMe4I — President Biden (@POTUS) August 24, 2022
