President Joe Biden of the United States made good on a campaign pledge to reduce student debt by announcing Wednesday that he will forgive $10,000 in federal student loans for millions of borrowers.
Debt cancellation is available to borrowers who make less than $125,000 annually, or $250,000 for married couples filing jointly. The majority of student loan debtors, those who get Pell Grants, will also be qualified for an additional $10,000 in debt relief, for a total of $20,000 in debt relief.
Additionally, Biden is extending the final moratorium on federal student loan payments through December 31. Its previous expiration date was August 31.
Biden discussed how the price of higher education has increased dramatically over the previous few decades while speaking at the White House.
According to Biden, an entire generation is being burdened with unmanageable debt in exchange for at least trying to earn a college degree. Even if you succeed in finishing, you might not be able to access the middle-class lifestyle that a college education formerly made possible.
Based on their wages for either the 2020 or 2021 tax year, borrowers may be eligible for debt forgiveness. Most qualified borrowers must submit an application for relief to the Education Department, which said it will make the paperwork available in the upcoming weeks, in order to be considered for relief.
Parent Plus loans, graduate loans, and undergraduate loans are all eligible for the forgiveness. Students who were claimed as dependents will be eligible based on their parents’ income rather than their own, but current students may also be eligible.
Biden has been under pressure from Democrats and those who support student debt relief for months to utilize his presidential power to cancel student loans.
He had faced criticism before the announcement for delaying the announcement of an extension of the loan payment moratorium until just days before the August 31 deadline, leaving millions of borrowers uncertain as to whether they would have to start making payments for the first time in more than two years.
In addition, Biden on Wednesday unveiled a new income-driven repayment plan that would lower the typical monthly repayment rate for undergraduate loans from 10% to 5% of the borrower’s discretionary income.
According to the White House, up to 20 million borrowers who have outstanding student loan amounts will have them completely forgiven, benefiting 43 million other borrowers.
However, the step falls short of the $50,000 in debt cancellation that some Democrats had demanded, and the cancellation’s limited breadth is likely to anger student debt relief campaigners who were calling for more comprehensive action. Additionally, several advocates stated that the means-testing component of the debt relief plan unveiled on Wednesday would make its implementation more difficult and that a few-month extension of the payment suspension would not be sufficient to allow for the adjustment of borrowers’ amounts.
The president and founder of the Student Debt Crisis Center, Natalia Abrams, said in a statement that while this announcement is a significant victory for many, it is crucial to emphasize that $10,000 will leave many others still drowning in debt, and crucial details will determine who has access to much-needed relief.
The White House made a point of emphasizing that the debt cancellation income cap would guarantee that those receiving assistance were middle- and low-income individuals rather than high-earning graduates. According to Biden, 90% of individuals who qualify make less than $75,000.
He also played down Republican and some Democratic worries that inflation might worsen as a result of debt elimination. According to Biden, starting student loan payments again together with targeted assistance would result in more money returning to the Treasury Department.
According to independent analysts, when these measures are done together, households will actually profit while inflation is little affected, Biden added.
Since President Donald Trump signed the CARES Act in March 2020, which suspended payments through September 2020 and halted interest from accruing in an effort to lessen the financial burden of the coronavirus pandemic, holders of federal student loans are no longer compelled to make payments.
Later, Trump issued an executive order extending the deferral period until January 2021. Biden has given out five additional extensions since taking office.
Borrowers receiving loans from privately held lenders are exempt from the moratorium.
In the US, there are almost 45 million students who are in debt. People owing more over $1.7 trillion in student loan debt, according to the Federal Reserve forecast for the second quarter of 2022.
Despite the fact that the majority of student loan debtors have debts under $20,000, those who have smaller balances frequently have an harder time paying it off because they may not have finished their degrees or may have degrees with lower earning potential than those who have greater debt.
Additionally, research indicates that students of color are more likely to incur student debt and experience disproportionate difficulties repaying it. The majority of students who attended for-profit universities have the highest default rates.