President Joe Biden on Wednesday announced the cancellation of up to $20,000 in student loan debt for certain borrowers, belatedly following through on a campaign issue that has remained a top priority for progressive Democrats.
Biden also announced a continuation of the freeze on student loan payments until January. The payments were originally paused by President Donald Trump in response to the coronavirus pandemic, and Biden had previously extended it until Aug. 31.
Roughly 45 million student loan borrowers collectively owe $1.6 trillion. As many as 43 million borrowers could benefit from the plan, the White House said Wednesday, and 20 million could see their debt completely canceled.
“People can start to finally crawl out from under that mountain of debt to get on top of their rent and utilities, to finally think about buying a home or starting a family or starting a business,” Biden said in remarks at the White House. “And by the way, when this happens, the whole economy is better off.”
Only student borrowers who also received Pell Grants, which are awarded based on need, would be eligible for the full $20,000 in debt cancellation. Administration officials said 60% of borrowers also received Pell Grants, meaning many could get the full relief. Borrowers who didn’t receive Pell Grants could have up to $10,000 of debt canceled.
The White House said debt cancellation will apply only to borrowers earning less than $125,000 annually.
“Nearly 90% of relief dollars will go to those earning less than $75,000 a year and no one in the top 5% of incomes in America will get a single dollar of relief,” an administration official said.
The White House is also proposing significant changes to income-based repayment plans offered by the federal government, including a lower payment cap, making it easier to achieve full forgiveness and preventing balances from growing as long as a borrower makes payments, which could have massive benefits for students in the future.
“The positive impacts of this move will be felt by families across the country, particularly in minority communities, and is the single most effective action that the president can take on his own to help working families and the economy.”
The decision has been anticipated for Biden’s entire presidency amid a tug-of-war over the ideal scope of relief and whether it would overly benefit well-off college graduates. Biden has said his legal authority to cancel debt was “questionable.” He initially said it was something Congress should do.
Progressive Democrats such as Sen. Elizabeth Warren (D-Mass.) urged Biden to go big and eliminate $50,000 worth of student debt per borrower, an idea Biden ruled out in April. Warren, Senate Majority Leader Chuck Schumer and Sen. Raphael Warnock (D-Ga.) ― who is facing a tough reelection bid this fall ― have repeatedly met with Biden to push the idea.
“With the flick of a pen, President Biden has taken a giant step forward in addressing the student debt crisis by cancelling significant amounts of student debt for millions of borrowers,” Warren and Schumer said in a joint statement on Wednesday. “The positive impacts of this move will be felt by families across the country, particularly in minority communities, and is the single most effective action that the president can take on his own to help working families and the economy.”
Though President Donald Trump imposed the initial moratorium on student loan payments, Republicans have ridiculed the idea of continuing the freeze or canceling student debt as a sop to rich elites.
“Working people who chose to avoid taking on debt should not have to bail out high-earning doctors, lawyers, and dentists, or adults who borrowed six figures for an Ivy League master’s,” Senate Minority Leader Mitch McConnell (R-Ky.) said earlier this year.
Republicans have also said canceling student debt will boost inflation. Sen. John Barrasso (R-Wyo.) said Wednesday the move “will make the pain of high prices even worse for Wyoming families.”
Biden said any inflationary pressure from partially canceling student debt would be more than offset by requiring borrowers to resume loan payments next year. And he took a swipe at Republicans for enacting tax cuts in 2017 that favored the wealthy.
“I will never apologize for helping Americans ― working Americans, middle class ― especially not to the same folks who voted for a $2 trillion tax cut that mainly benefited the wealthiest Americans and the biggest corporations,” he said.
In the recent past, Biden has wondered whether canceling student debt would improperly benefit Ivy League grads, though 99% of borrowers did not attend Ivy League schools, according to one estimate.
An analysis by the Penn-Wharton Budget Model, released Tuesday, indicated that borrowers in the top two-thirds of the U.S. income distribution would get nearly 70% of the benefit of the debt cancellation; slicing the data another way, borrowers in the bottom two-thirds would get 57% of the benefit (a big chunk of borrowers fall in the shared middle third).
Progressives have also pointed to the 40% of student borrowers who never managed to graduate from college as evidence that the policy can benefit a broad swath of the public.
Polling on the issue is mixed, with public opinion shifting significantly based on the wording of questions and the options presented. An NPR/Ipsos survey released in July found 55% of Americans supported forgiving $10,000 a person worth of student loan debt, with 35% opposed. Support dropped when asked about forgiving all debt: just 41% support, with 49% opposition. Placing an income cap on loan forgiveness had little effect on the policy’s popularity.
Asked which statement they agreed with more, 59% of Americans said the government should help those with student debt to deal with the high cost of college, while just 39% said paying off college debt was the responsibility of the borrower. At the same time, an overwhelming 82% majority of Americans thought the government should prioritize “making college more affordable for current and future students,” while just 16% thought it should prioritize loan forgiveness.
But there’s been little progress on college affordability in Congress. While the administration proposed beefing up the value and availability of Pell Grants for low-income students and making community college free, both policies were dropped in negotiations with moderate Democrats.
The administration’s proposal to change income-based repayment plans, while not directly tackling high costs, should make them more manageable. The new rule would cap payments at 5% of a borrower’s monthly income rather than 10% and would also cover the unpaid monthly interest for borrowers — which would ensure loan balances don’t grow as long as a borrower makes payments.
The administration is also proposing total forgiveness after 10 years of payments, rather than the current 20 years, for people with debt less than $12,000.
Moderate Democrats, some of whom are facing tough reelection bids this fall, have been somewhat skittish about loan forgiveness. After an appearance at Arizona State University earlier this month, Sen. Mark Kelly (D-Ariz.) dodged a question about student loan forgiveness, saying he would need to see an official proposal from the administration.
“The federal government should not be making money on the backs of students trying to get an education and education costs too much,” Kelly said. “I mean, it is unaffordable for so many families. There needs to be reforms in the system.”
Many Democrats were silent on the issue on Wednesday, though Rep. Chris Pappas (D-N.H.) criticized the proposal. Pappas is facing a tough reelection bid this November.
“This announcement by President Biden is no way to make policy and sidesteps Congress and our oversight and fiscal responsibilities,” Pappas said. “Any plan to address student debt should go through the legislative process, and it should be more targeted and paid for so it doesn’t add to the deficit. The President’s plan also doesn’t address the underlying issue of the affordability of higher education.”