In keeping with a campaign promise, President Joe Biden said on Wednesday that he will forgive $10,000 in federal student loan debt for the majority of debtors, providing millions of Americans with financial relief.
Biden will waive up to $20,000 in fees for Pell Grant recipients.
“Both of these targeted actions are for families who need it the most,” in remarks delivered from the White House on Wednesday afternoon, the president.
Americans who make less than $125,000 annually, or $250,000 for married couples or household heads, will only be eligible for the relief. According to the Education Department, the relief is likewise limited to the sum of a borrower’s outstanding qualified debt.
According to the tweet, the president will also “one last time” extend the payment moratorium on the majority of federal student loans through December 31, 2022.
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.— President Biden (@POTUS) August 24, 2022
I'll have more details this afternoon. pic.twitter.com/kuZNqoMe4I
43 million borrowers, or 95% of borrowers, would profit from the idea, according to Biden’s speech. More than 60% of those have Pell Grants.
All told, approximately 20 million borrowers, or roughly 45% of all debtors, would have their debt completely forgiven, according to Biden.
“That’s 20 million people who can start getting on with their lives,” Biden said.
“All of this means people can start finally to crawl out from under that mountain of debt. To get on top of their rent and their utilities. To finally think about buying a home or starting a family or starting a business.”
According to higher education analyst Mark Kantrowitz, Biden’s decision to continue forward with the $10,000 in student debt forgiveness for students who earn under $125,000 will cost the federal government about $244 billion. The government’s expenses could increase by about $120 billion as a result of the $20,000 in relief for Pell Grant applicants.
Following years of advocacy pressure and recent months of tense debate among Biden administration officials, the White House took the unusual step of canceling hundreds of billions of dollars’ worth of consumer debt.
These talks focused on the amount of student debt that should be cancelled, how student loan forgiveness may affect the rising inflation striking Americans’ wallets, and whether the president even had the authority to lower people’s balances without the support of the legislative branch.
The administration was under more pressure to make a choice because of the upcoming midterm elections in November. Advocates claim that waiving student loan debt will inspire younger voters—among whom Biden has been losing support—to turn out in large numbers.
Although the Senate Majority Leader Chuck Schumer, D-N.Y., and organizations like the NAACP had urged the president to cancel $50,000 or more per person, the administration had repeatedly indicated reluctance to forgive that much debt for all borrowers.
The Trump administration stopped making payments on federal student loans after the coronavirus epidemic struck the United States in March 2020 and destroyed the economy. The president’s decision on student loan forgiveness will be made before payments start in September, according to Ron Klain, Biden’s White House chief of staff, who announced earlier this year. However, that delay has already been extended six times.
Borrowers of student loans owe $1.7 trillion in total
The phrase “the student loan crisis” is now frequently used by politicians and by Americans in their daily conversations.
More than 40 million Americans owe a total of $1.7 trillion in student loan debt, which is far more than their total credit card or vehicle loan debt. The amount of student debt graduates graduate with has increased as a result of higher education costs skyrocketing and incomes remaining flat. The average balance has increased from $12,000 in 1980 to nearly $30,000 today.
The federal student loan system had issues prior to the epidemic, when it was one of the healthiest times in American history.
Kantrowitz estimated that only approximately half of borrowers were in repayment in 2019. More than 10 million people, or 25 percent, were in arrears or in default, while the remaining applicants had requested interim assistance for troubled borrowers, such as deferments or forbearances.
These depressing numbers prompted analogies to the mortgage crisis of 2008.
Persis Yu, policy director for the Student Borrower Protection Center, declared that “the student loan system is broken.”
There is pressure in a “broken” system to eliminate student debt
Republicans and Democrats have both cited serious shortcomings in the federal student loan program. According to experts, issues start to arise as soon as students take out loans, and more issues arise throughout repayment. They include:
- At universities they claim were predatory and dishonest, hundreds of thousands of students received federal loans, leaving them with large debt loads and dim employment prospects.
- They have been charged with deceiving borrowers and pushing them into needlessly costly and protracted forbearances by the lenders who work with the U.S. government.
- Due to unclear criteria and lenders that neglected to keep track of borrowers’ payments, one of the most well-known federal programs, Public Service Loan Forgiveness, has not yet resulted in the debt forgiveness that more than a million borrowers were counting on.
- Due to the federal government’s extraordinary collection capabilities, portions of the benefits of hundreds of thousands of veterans and senior citizens who have fallen behind on their student loan payments have been frequently withheld.
According to research, having school debt prevents people from starting their own businesses, investing for retirement, and purchasing homes.
As a result, debt forgiveness is probably going to alter the course of millions of Americans’ lives.
How student loan forgiveness gained traction
Broad student loan forgiveness demands have been made since the Occupy Wall Street movement of 2011, just before total student loan debt exceeded $1 trillion.
Advocates at the time started to wonder why corporations should receive a government bailout for their debt but not regular Americans who had pursued an education.
Sen. Elizabeth Warren, D-Mass., announced a plan to erase $50,000 for almost all creditors on her first day in office as president during the 2020 Democratic primary. Sen. Bernie Sanders, I-VT, went a step farther and pledged to eliminate all debt if elected president.
Biden adopted a more moderate stance during the election than his left-leaning rivals, coming out in favor of a $10,000 student loan forgiveness. However, while in office, the president has come under constant pressure from Democrats and supporters to provide greater relief.
The elimination of merely $10,000 would be “a slap in the face” for Black borrowers, who frequently have to borrow more than their white counterparts because to the racial wealth disparity, according to Wisdom Cole, national director of the NAACP’s youth and college division.
Forgiveness, according to critics, is ‘sending the wrong message’
Many Americans, including those who never took out student loans for their education or attended college, are likely to be incensed by the announcement. The House Ways and Means Committee’s ranking Republican, Rep. Kevin Brady of Texas, recently referred to student loan forgiveness as “a giveaway to highly educated college grads.” Republicans have stated that they will make an effort to stop the president from eradicating the debt.
The justice of providing assistance to people who have benefited from a college degree, which typically results in higher salaries, has been questioned by opponents of student loan forgiveness.
“Economists generally agree that widespread loan cancellation is regressive, delivering the biggest bailout to those who need it the least,” said Beth Akers, a senior fellow at the American Enterprise Institute, a center-right think tank.
According to Akers, forgiveness will simply make the lending issue worse.