Updated August 24, 2022 at 1:18 PM ET
On Wednesday, President Biden announced a sweeping effort to forgive up to $20,000 of federal student loan debt for Pell Grant recipients, and up to $10,000 for other qualifying borrowers. Biden also extended the federal student loan payment pause 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 said in a tweet on Wednesday.
U.S. Secretary of Education Miguel Cardona said in a statement, “Today, we’re delivering targeted relief that will help ensure borrowers are not placed in a worse position financially because of the pandemic, and restore trust in a system that should be creating opportunity, not a debt trap.”
To qualify for the $10,000 forgiveness, individual borrowers must earn less than $125,000 a year, or less than $250,000 a year for couples. To qualify for the $20,000 forgiveness, borrowers must meet those income requirements and must have received a Pell Grant in college. Pell Grants are designed to help low-income students pay for higher education.
The Department of Education estimates that, among borrowers who are no longer in school, nearly 90% of relief dollars will go to those earning less than $75,000 a year.
About 43 million borrowers will benefit, and 20 million will have their debt completely canceled, according to a senior administration official. The White House said more than 60% of current federal student loan borrowers also received Pell Grants.
In order to benefit from this announcement, most borrowers will have to submit an application to verify their income. The Education Department said nearly 8 million borrowers already have income information on file, and should qualify to have their debts canceled automatically. The department will announce further details on how borrowers can claim this relief in the weeks ahead.
Some borrowers are celebrating, others hoped for more
Many borrowers are celebrating Biden’s announcement: Giselle Parks of Orlando, Fla., expects to have her $5,000 in student loan debt completely erased.
“Holy cow,” she said. “Holy cow… I need to tell my family immediately!”
Trianna Downing in D.C. said she was in shock. “I can’t even process it yet… At first I was, like, dancing, and then I was like, wait, should I log into my account and see if it actually happened?”
Downing expects her debts to drop from $16,000 to $6,000.
But some higher-debt borrowers were left disappointed, especially after a group of House and Senate Democrats had called on Biden to cancel $50,000 in federal student debt.
“It’s hard to be excited about it,” says Briana Ford of Columbia, S.C. She owes almost $60,000 in student loans.
“I wouldn’t give it back, but it’s hard to be excited about it.”
Republicans aren’t too excited either. They’ve long argued against broad-based loan forgiveness.
“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,” said Rep. Virginia Foxx of North Carolina, the top Republican on the House Education Committee, in a Tuesday night statement.
Many economists and higher education experts also opposed the move, arguing that widespread debt cancellation would do nothing to fix the rising costs of college.
In a May analysis, the Committee for a Responsible Federal Budget estimated a policy like the one Biden announced would cost at least $230 billion, and warned that even income limits “would do almost nothing to alleviate the central issues with the policy, namely that it is regressive, inflationary, expensive, and would likely do more to increase the cost of higher education going forward than to reduce it.”
Will it make inflation worse?
Experts have expressed concern that broad-based student loan forgiveness would exacerbate inflation, which is already one of Biden’s greatest political weaknesses heading into this fall’s midterm elections.
“Student loan debt relief is spending that raises demand and increases inflation,” tweeted former U.S. Treasury Secretary Lawrence Summers earlier this week.
“It consumes resources that could be better used helping those who did not, for whatever reason, have the chance to attend college. It will also tend to be inflationary by raising tuitions.”
Summers’ opposition stirred considerable dissent.
“You have to tell a pretty bizarre story about expectations in order for loan forgiveness to boost inflation,” responded Susan Dynarski, an economist and professor at the Harvard Graduate School of Education.
“No one has been making student loan payments for two years. Forgiveness will *not* increase cash flow to borrowers right now. That increase in available cash happened *2 years ago* when payments were suspended.”
Borrowers have been waiting years for loan forgiveness
The loan forgiveness announcement comes more than two years after then-presidential candidate Joe Biden pledged to cancel at least $10,000 in federal student loans. The pledge has followed the administration since. Wednesday’s move comes after several extensions to the student loan moratorium, and attempts by some Democrats to expand forgiveness from the original plan to $50,000.
In June, an NPR/Ipsos poll found a majority of the general public (55%) supported forgiving up to $10,000 of a person’s federal student loan debt. But the more generous the relief, the more that support narrowed. Forty-seven percent of all respondents said they supported forgiving up to $50,000 in debt, while 41% expressed support for wiping the slate completely clean for all borrowers.
Support for debt relief was, not surprisingly, higher among borrowers themselves. But when asked to choose between debt forgiveness and addressing the high cost of college, an overwhelming majority — borrowers and non-borrowers alike — said addressing the rising cost of college was most important.
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