Washington – More than 40 million Americans had their student loan debt reduced – and in many cases eliminated – under the long-awaited forgiveness plan announced by President Joe Biden on Wednesday, a historic but politically divisive step in the run-up to the midterm elections.
Fulfilling a campaign promise, Biden is erasing $10,000 in federal student loan debt for families with incomes below $125,000 or making less than $250,000. He is also eliminating an additional $10,000 for those who received federal Pell Grants to attend college.
It’s seen as an unprecedented effort to stem the tide of America’s fast-rising student debt, but it doesn’t address a broader problem — the high cost of college.
Republicans quickly denounced the plan as an insult to those who paid off their loans and those who didn’t go to college. Critics across the political spectrum also questioned whether Biden had the right to make the move, and legal challenges are virtually certain.
Biden called the pause on federal student loan payments known as “deadline.” The pause will now run through the end of the year, with repayments resuming in January.
“Both of these targeted actions are for the families who need it most: working and middle-class people hit particularly hard during the pandemic,” Biden said at the White House on Wednesday afternoon.
The cancellation applies to federal student loans used to attend undergraduate and graduate school, including Parent PLUS loans. Current college students are eligible if their loans were issued before July 1. For dependent students, their parents’ household income must be below $250,000.
Most people will have to apply for help. The Department of Education has income data for a small portion of borrowers, but the majority have to prove their income through the application process. Applications will be available before the end of the year, officials said.
Biden’s plan would make 43 million borrowers eligible for some loan forgiveness, with 20 million who could have their debt completely wiped out, according to the administration. About 60% of borrowers are recipients of federal Pell Grants, which are reserved for graduates with the most significant financial need, meaning more than half can receive $20,000 in aid.
Sabrina Carton, a 29-year-old media strategist from New York City, is hoping to completely wipe out her federal debt. When she checked the balance Wednesday, it was $9,940.
Carton used the loan to attend Tufts University, and Biden’s plan would see her help her parents repay the extra thousands they borrowed for her education. As a first-generation college student herself, she calls it a “leveling moment.”
“I know there are people who think it’s not enough, and that’s true for a lot of people,” said Carton, who has already paid off about $10,000 of her loan. “I can say for me personally and a lot of people, that’s a lot of money.”
For Braxton Simpson, Biden’s plan is a great first step, but it’s not enough. A 23-year-old MBA student at North Carolina Central University has more than $40,000 in student loans. As an undergraduate student she took jobs to reduce her debt, but at $10,000 a semester, the costs escalated.
As a black woman, she felt that a higher education was necessary to have a more stable financial future, even if it meant taking on large amounts of debt, she said.
“To get out of many situations that have become a systematic part of our lives, we have to go to school,” Simpson said. “And so we go into debt.”
The plan does not apply to future college students, but Biden is proposing a separate rule that would lower monthly payments on federal student loans.
The proposal would create a new payment plan that would require borrowers to pay no more than 5% of their earnings, down from 10% in similar existing plans. Will write off any remaining balance after 10 years compared to 20 years now.
It would also raise the floor for repayment, meaning that no one earning less than 225% of the federal poverty level would be required to make monthly payments.
As a rule, it does not require congressional approval. But it may take more than a year to finalize it.
Biden’s plan comes after more than a year of deliberations, which has faced intense lobbying from liberals who want broad debt relief and from moderates and conservatives who question its fundamental fairness or say it does nothing to solve the debt crisis.
“In my opinion, the administration should have targeted the aid more and proposed a way to pay for this plan,” said Sen. Michael Bennett, D-Colo. “While immediate relief to families is important, one-time loan cancellations do not solve the underlying problem.”
A popular campaign promise during the presidential primaries, the issue created an almost unwinnable situation. Still, many Democrats rallied around it, including support for Biden who wanted to go beyond $10,000.
“I will continue to do more because I think it’s the right thing to do,” Sen. Elizabeth Warren, D-Mass. said, who had requested that Biden be forgiven up to $50,000. “But we need to take a deep breath here and recognize what it means for the president of the United States to directly touch so many hard-working middle-class families.”
Supporters see repeal as a matter of racial justice. Black students are more likely to take out federal student loans, and to a greater extent than their white peers.
The NAACP, which pressed Biden to repeal the $50,000 per person minimum, said the plan is “one step closer” to lifting the student loan burden.
The group’s president, Derrick Johnson, urged Biden to cancel loans quickly and without bureaucratic hurdles for borrowers.
Biden’s decision to impose income limits has come up against objections from some who say adding a detailed application process to verify income could keep out some borrowers who need help the most.
The Biden administration defended the cap as a gatekeeper against wealthy borrowers. Politically, it is designed to counter arguments from critics who call debt cancellation a handout to the rich. Republicans hit back at that argument Wednesday, despite the cap.
“President Biden’s inflation is crushing working families, and the answer is to give more government money to high-paid elites,” Senate GOP Leader Mitch McConnell said. “Democrats are literally using working Americans’ money to buy some enthusiasm from their political base.”
One of the main political sticking points is cost: Biden’s new plan, which includes debt cancellation, a new repayment plan and a payment freeze, would cost $400 billion to $600 billion, according to the Committee for a Responsible Federal Budget, a nonprofit. which supports a lower deficit.
Asked about Wednesday’s spending, Biden’s domestic policy adviser Susan Rice said, “I can’t give you that off the top of my head.”
There are also pending questions about the administration’s authority to revoke student loan forgiveness. The Justice Department issued a legal opinion that concluded that the Higher Education Aid Opportunity for Students Act gives the Secretary of Education the authority to “reduce or eliminate the obligation to repay the principal balance of federal student loan loans.”
The legal opinion also concluded that the waiver could be implemented on a “class-wide” basis in response to the national emergency coronavirus pandemic.
Still, lawsuits are possible. Alfredo Ortiz, president and CEO of the Job Creators Network, which promotes conservative economic policies, said it is considering legal options, calling the president’s efforts “fundamentally unfair” to those who have never borrowed for college.
AP writers Zeke Miller, Annie Ma and Sharon Lurie contributed to this report.
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