Biden to cancel up to $10,000 in student debt for most borrowers and $20,000 for Pell recipients
President Joe Biden said Wednesday he will cancel up to $10,000 in federal student loan debt for many borrowers – and double that amount for Pell Grant recipients – a move that could offer some level of forgiveness for about 43 million Americans.
The forgiveness is expected to apply to Americans earning under $125,000 per year, or $250,000 per year for married couples who file taxes jointly. The White House estimates that 90% of relief will go to people earning less than $75,000.
The president is also is extending a pandemic-era pause on federal student loan payments, first implemented under the Trump administration, 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 tweeted Wednesday. He was expected to discuss the decision more in the afternoon.
The announcement puts to rest months of deliberation over whether Biden would use his executive authority to forgive a portion of the federal student debt burden. It arrives ahead of congressional midterm elections and could give the Democrats a boost with some voters, but also threaten their standing with those who say the amount is not enough – or too much.
Biden has drawn the ire of activists and some student loan borrowers who were growing tired of promises of a decision that stretched over more than a year. Biden had previously expressed reluctance to grant forgiveness to people who attended elite universities, while moderate Democrats and Republicans derided the policy as fiscally irresponsible.
The decision to add additional forgiveness for Pell Grant recipients reflects the White House’s desire to limit debt relief to Americans most in need. Pell grants are a form of aid for families typically earning less than $60,000 a year. It is the largest federal grant for higher education and a critical resource for students from lower-income households.
Seven in 10 college graduates with federal loans also received a Pell Grant, and Pell recipients have on average an additional $4,500 more debt than other college graduates, according to the Institute for College Access & Success, an advocacy organization.
“It’s great to see the president take action to forgive the crushing debt burdens of borrowers from the most disadvantaged backgrounds,” said Lindsay Owens, executive director of the Groundwork Collaborative, a left-leaning think tank.
The White House’s decision rejects the warnings of centrist Democratic economists – such as Larry Summers, the former Democratic treasury secretary – who have said it will increase inflation and add to the federal deficit. Republican lawmakers are also expected to blast the White House over the move, arguing it offers unnecessary subsidies to Americans who made bad decisions while doing nothing for those who did not go to college.
Previous estimates have found that canceling $10,000 in student debt per borrower could cost the federal government roughly $230 billion, but that number will be higher with the larger amount for Pell Grant recipients.
“Canceling student debt is expensive, inflationary, and unfair to those who paid their student loans and most likely illegal,” said Brian Riedl, a policy analyst at the Manhattan Institute, a center-right think tank. “It does nothing to prevent universities from raising costs and students from borrowing more money in anticipation of future loan forgiveness.
Republicans have remained steadfast in their disapproval of broad cancellation, arguing that Biden would be placing the burden of the broken student loan system on the backs of taxpayers.
Earlier this month, a group of congressional Republicans, led by Rep. Virginia Foxx of North Carolina, released what they called dubbed an alternative to Biden’s blanket debt forgiveness plans. The proposal would establish new borrowing limits, reduce interest and simplify repayment options while ending popular loan-cancellation programs. It also calls for an end to the suspension of federal student loan payments.
A recent Government Accountability Office report, requested by Foxx, shows the federal government is on track to lose $197 billion in revenue from the lending program because, in part, of the suspension of payments and interest.
The current pause had been set to end Aug. 31. But now, approximately 41 million Americans will have another four months before their payments resume. The moratorium was first instituted in 2020 because of the economic upheaval caused by the pandemic. The Trump administration twice extended it, and Biden’s White House has now done so five times.
The latest extension is as much a reprieve for the Education Department as it is for borrowers. The federal agency has a host of initiatives underway – including lifting millions of people out of default, and helping millions more move closer to loan forgiveness – and limited staff to do it.
More than 100 congressional Democrats raised those concerns in a letter to Biden last month, urging the president to maintain the suspension of payments while the department executes those actions. They argued that resuming payments would also force millions to choose between paying their loans and living expenses as consumer prices sit at record highs.
Still, the Biden administration has frustrated borrowers, policymakers and its own student loan servicers by waiting to announce an extension days before payments were set to resume. The delay created confusion, as some borrowers received notices of the impending restart from their servicers in error.