WASHINGTON — President Joe Biden announced Wednesday that he would cancel $10,000 in federal student loans for millions of borrowers, following his campaign promise to tackle the burden of student debt.
Borrowers who earn less than $125,000 per year, or $250.00 for couples filing taxes jointly, are eligible for debt forgiveness. Pell Grant recipients, who make up the majority of student loan borrowers, are eligible for an additional $10,000 in debt relief, for a total of $20,000.
Biden is also extending the payment break on federal student loans for one last time until December 31.
In a tweet, President Joe Biden said he would provide more details about the announcement Wednesday afternoon.
Borrowers may be eligible for debt forgiveness based on their income in tax year 2020 or 2021. The Education Department will release additional information about the steps eligible borrowers must take to ensure they receive the benefit.
The long-awaited announcement comes after months of pressure from Democrats and student debt relief advocates for Biden to use his presidential authority to forgive student debt.
Prior to the announcement, the president had been criticized for waiting until just a few days before the August 31 deadline to announce an extension of the payment moratorium, leaving it unclear to millions of borrowers whether they should start paying for the first time in more than two years.
Biden is also announcing a new income-driven repayment plan that would limit monthly payments for undergraduate loans to 5 percent of a borrower’s discretionary income, at the current rate of 10 percent under most existing plans.
The White House said 43 million student loan borrowers will benefit from the president’s actions, and as many as 20 million borrowers will have their entire remaining student loan balance wiped out.
Still, the move falls short of the $50,000 in debt forgiveness some Democrats have been asking for. The limited scope of the cancellation is likely to frustrate proponents of student debt relief who pushed for broader action. Some proponents also warned that asset testing would make implementation more difficult, arguing that extending the payment pause by a few months would not be enough time to adjust borrowers’ balances.
“While this announcement is a major victory for many, it is important to emphasize that $10,000 will still leave many others crushed by debt, and important details will determine who has access to much-needed aid,” said Natalia Abrams, the president. and founder of the Student Debt Crisis Center.
Federal student loan holders have been exempt from making payments since March 2020, when former President Donald Trump signed the CARES Act, suspending payments until September 2020 and stopping interest rates from rising in an effort to alleviate the economic impact of the pandemic.
Trump later took executive steps to extend the postponement until January 2021. Since taking office, Biden has issued five more extensions.
The moratorium does not apply to borrowers with private loans.
While Biden has said the economy has recovered from the pandemic and has ended most other Covid-era economic support, some Democrats have warned the president that resuming payments so close to the midterm elections would upset voters. can make. Some have also argued that it would be unfair to restart payments, while high inflation is driving up essential costs, such as food and rent.
Debt forgiveness proponents are growing increasingly frustrated with Biden’s lengthy decision-making process on student loans. They have also argued that the longer payments are suspended, the politically more difficult it will be for the president to restart them.
About 45 million Americans have student debt. The Federal Reserve estimated that Americans owed more than $1.7 trillion in student loans in the second quarter of 2022.
While most student borrowers owe less than $20,000, those with smaller debts often have a… harder to pay off because they may not have completed their degree or have a degree with lower earning potential compared to those with more debt.
Studies also show that students of color are more likely to take on student debt and have a disproportionate effort to pay it back. The highest default rates are among students who have attended for-profit institutions.