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Biden to cancel up to $10,000 in student loans, $20K for Pell recipients

The president is also extending a pause on federal student loan payments through Dec. 31

Biden announced $10,000 in relief for student loan borrowers making less than $125,000 annually, and an additional $10,000 for Pell Grant recipients. (Video: Michael Cadenhead/The Washington Post)

President Biden on Wednesday delivered on a controversial campaign promise to cancel a portion of the education debt held by millions of Americans, ending uncertainty about what they would ultimately owe.

Biden said he would cancel up to $10,000 in federal student loan debt for borrowers who earn less than $125,000 per year, or under $250,000 for married couples who file jointly. Those who receive Pell grants, federal aid for lower-income students, could see up to $20,000 in forgiveness.

The announcement was the culmination of years of activism that pushed what was once a fringe idea into the mainstream, onto political agendas and now into actual policy. It arrives ahead of congressional midterm elections and could give Democrats a boost with some voters but also threaten their standing with those who say the amount is not enough — or too much.

Calculate how much of your student loan debt can be forgiven

Conservatives immediately assailed the move as fiscally irresponsible and patently unfair to the millions of Americans who never attended college, never borrowed or paid off their loans. Some lawmakers and activists had also called for Biden to cancel even more loans.

Biden gave a robust defense of the policy, touting that it is designed to deliver the greatest benefits to the neediest borrowers. The White House estimates that nearly 90 percent of relief will go to people earning less than $75,000 and that roughly 20 million borrowers could have their debt completely canceled.

“I will never apologize for helping America’s working class, America’s middle class, especially not to the same folks who voted for a $2 trillion tax cut that mainly benefited the wealthiest Americans and the biggest corporations,” Biden said during an afternoon announcement at the White House. “The outrage over helping working people with student loans … is dead wrong.”

Biden said the policy would help Americans crawl out from underneath their debt, placing them on a stronger financial footing to get ahead on bills, save for a home or even start a family.

The president is also extending a pandemic-era pause on federal student loan payments, first implemented under the Trump administration, through Dec. 31, and proposed creating a new income-based repayment plan to lower monthly bills for undergraduate borrowers.

Most student debt is held in large loans, but most borrowers have small loans

About 13% of federal student debt is held in loans of $20K or less ...

32%

38%

5

8%

17%

<$10K

10-20K

20-40K

40-100K

100K+

... but 53% of borrowers owe less than $20K

7%

100K+

18%

40-100K

33% of borrowers have $10K or less left on their loans

20%

10-20K

21%

20-40K

Source: Department of Education

ALYSSA FOWERS/THE WASHINGTON POST

Most student debt is held in large loans, but most borrowers have small loans

About 13% of federal student debt is held in loans of $20K or less ...

32%

38%

5

8%

17%

<$10K

10-20K

20-40K

40-100K

100K+

... but 53% of borrowers owe less than $20K

33% of borrowers have $10K or less left on their loans

20%

10-20K

21%

20-40K

7%

100K+

18%

40-100K

Source: Department of Education

ALYSSA FOWERS/THE WASHINGTON POST

Most student debt is in large loans, but most borrowers have small loans

About 13% of federal student debt is held in loans with $20K or less still owed ...

32%

38%

5%

8%

17%

<$10K

10-20K

20-40K

40-100K

100K+

... but 53% of borrowers owe less than $20K

33% have <$10K or less left on their loans

20%

10-20K

21%

20-40K

18%

40-100K

7%

100K+

Source: Department of Education

ALYSSA FOWERS/THE WASHINGTON POST

Who qualifies for Biden’s plan to cancel $10,000 in student debt?

The debt forgiveness applies to loans that were originated on or before June 30, which could offer relief to some current college students — if their household income was under $250,000 during the last federal student aid award year — as well as borrowers with much older debt.

The announcement puts to rest months of deliberation over whether Biden would use his executive authority to forgive a portion of the $1.6 trillion federal student debt burden.

The Biden administration has already approved nearly $32 billion in loan forgiveness to 1.6 million people through targeted actions for disabled borrowers and those defrauded by their colleges.

But Biden had drawn the ire of activists and some student loan borrowers who were growing tired of waiting for a decision on broader cancellation, a pledge he first made as a candidate. Biden had previously expressed reluctance to grant forgiveness to people who attended elite universities, while moderate Democrats and Republicans derided the policy.

“With the flick of a pen, President Biden has taken a giant step forward in addressing the student debt crisis,” Senate Majority Leader Charles E. Schumer (D-N.Y.) and Sen. Elizabeth Warren (D-Mass.) said in a statement. “No president or Congress has done more to relieve the burden of student debt and help millions of Americans make ends meet.”

Schumer and Warren had urged the administration to go much further and cancel at least $50,000 per borrower. They said reducing the burden of student loans would help stimulate the economy and close the racial wealth gap, as Black borrowers shoulder a disproportionate amount of debt.

What the student loan payment pause has meant to Black women

Warren, who had also urged Biden to provide additional relief to Pell recipients, said in an interview that she will continue to push for more relief for borrowers. Still, she added: “I’m absorbing the magnitude of what just happened, and I think it is important to just keep building on it.”

After six repayment extensions, pressure from Congress and activists, the White House acts on federal student loans. (Video: Michael Cadenhead/The Washington Post)

The executive order will probably face legal opposition, said Lanae Erickson, who heads social policy at Third Way, a centrist Democratic think tank. She suspects the policy could be challenged on the same grounds as the West Virginia v. Environmental Protection Agency case, in which the Supreme Court ruled the federal government can’t act on policy with broad economic significance without clear congressional authorization. Last year, House Speaker Nancy Pelosi (D-Calif.) said at a news conference that Biden did not have the authority to cancel loans on his own.

“Advocates and policymakers who pushed to take this unprecedented step are responsible for also communicating to borrowers that there is a strong chance it will never come to fruition,” Erickson said. “Given that the application may not be available until the end of the year, the strong likelihood is that courts will enjoin this action before it gets started — leaving borrowers in limbo.”

The Biden administration Wednesday released a legal opinion asserting that the Higher Education Relief Opportunities for Students Act gives the education secretary the “authority to reduce or eliminate the obligation to repay the principal balance of federal student loan debt.”

Who has student loan debt in America?

The faces of student debt

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. Many Pell recipients are racial minorities, veterans and first-generation college students.

“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.

National video reporter Hannah Jewell explains what you need to know about the Biden administration’s plan to forgive some federal student loans. (Video: Hannah Jewell, Casey Silvestri/The Washington Post)

The Biden administration also proposed creating a new repayment plan tied to borrowers’ earnings, capping monthly payments for undergraduate loans to 5 percent of a person’s discretionary income instead of 10 percent. It also would raise the amount of income that is considered non-discretionary and forgive balances after 10 years of payments, instead of 20 years.

The White House’s decision rejected 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.

Biden allies feud over student loan cancellation

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.

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.

This month, a group of congressional Republicans, led by Rep. Virginia Foxx (N.C.), released what they called 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 in part due to the suspension of payments and interest.

GAO: Federal government is losing, not making, money off student loans

On Wednesday, Foxx said: “This is a slap in the face to those who never went to college, as well as borrowers who upheld their responsibility to taxpayers and paid back their loans. It’s a signal to every freshman stepping foot on campus to borrow as much as they can because taxpayers are picking up the tab.”

Biden’s extension of the payment pause means borrowers will have another four months before they must begin repaying their loans again. The moratorium, which had been set to end Aug. 31, 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 them.

More than 100 congressional Democrats raised those concerns in a letter to Biden last month, urging the president to maintain the suspension of payments. 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 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.

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