President Joe Biden on Wednesday announced his long-awaited plan to deliver on a campaign promise to provide $10,000 in student debt cancellation for millions of Americans — and up to $10,000 more for those with the greatest financial need — along with new measures to lower the burden of repayment for their remaining federal student debt.
Borrowers who earn less than $125,000 a year, or families earning less than $250,000, would be eligible for the $10,000 loan forgiveness, Biden announced in a tweet.
For recipients of Pell Grants, which are reserved for undergraduates with the most significant financial need, the federal government would cancel up to an additional $10,000 in federal loan debt.
Biden is also extending a pause on federal student loan payments for what he called the “final time” through the end of 2022.
He was set to deliver remarks Wednesday afternoon at the White House to unveil his proposal to the public.
If his plan survives legal challenges that are almost certain to come, it could offer a windfall to a swath of the nation in the run-up to this fall's midterm elections.
More than 43 million people have federal student debt, with an average balance of $37,667, according to federal data.
Nearly a third of borrowers owe less than $10,000, and about half owe less than $20,000.
The White House estimates that Biden's announcement would erase the federal student debt of about 20 million people.
Proponents say cancellation will narrow the racial wealth gap — Black students are more likely to borrow federal student loans and at higher amounts than others.
Four years after earning bachelor's degrees, Black borrowers owe an average of nearly $25,000 more than their white peers, according to a Brookings Institution study.
Still, the action is unlikely to thrill any of the factions that have been jostling for influence as Biden weighs how much to cancel and for whom.
Biden has faced pressure from liberals to provide broader relief to hard-hit borrowers, and from moderates and Republicans questioning the fairness of any widespread forgiveness.
The delay in Biden's decision only heightened the anticipation for what his own aides acknowledge represents a political no-win situation.
The people spoke on the condition of anonymity to discuss Biden's intended announcement ahead of time.
The White House emphasised that no one in the top 5 per cent of incomes would see any loan relief.
The continuation of the coronavirus pandemic-era payment freeze comes just days before millions of Americans were set to find out when their next student loan bills will be due.
This is the closest the administration has come to hitting the end of the payment freeze extension, with the current pause set to end August 31.
Details of the plan have been kept closely guarded as Biden weighed his options.
The administration said Wednesday the Education Department will release information in the coming weeks for eligible borrowers to sign up for debt relief.
Cancellation for some would be automatic, if the department has access to to their income information, but others would need to fill out a form.
Current students would only be eligible for relief if their loans were originated before July 1, 2022.
Biden is also proposing capping the amount that borrowers must pay monthly on undergraduate loans at 5 per cent of their earnings.
The Education Department is to post a proposed rule to that effect, which would also cover the unpaid monthly interest for borrowers who remain current with their monthly payments — even when the payments are $0 because their incomes are low.
The politics of cancellation
During the 2020 presidential campaign, Biden was initially skeptical of student loan debt cancellation as he faced off against more progressive candidates for the Democratic nomination.
Sens. Elizabeth Warren, D-Mass., and Bernie Sanders, I-Vt., had proposed cancellations of $50,000 or more.
As he tried to shore up support among younger voters and prepare for a general election battle against President Donald Trump, Biden unveiled his initial proposal for debt cancellation of $10,000 per borrower, with no mention of an income cap.
Biden narrowed his campaign promise in recent months by embracing the income limit as soaring inflation took a political toll and as he aimed to head off political attacks that the cancellation would benefit those with higher take-home pay.
But Democrats, from members of congressional leadership to those facing tough re-election bids this November, have pushed the administration to go as broad as possible on debt relief, seeing it in part as a galvanising issue, particularly for Black and young voters this fall.
“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," said Warren on Wednesday in a joint statement with Senate Majority Leader Chuck Schumer.
Although Biden's plan is changed from he initially proposed during the campaign, “he'll get a lot of credit for following through on something that he was committed to,” said Celinda Lake, a Democratic pollster who worked with Biden during the 2020 election.
A survey of 18- to 29-year-olds conducted by the Harvard Institute of Politics in March found that 59 per cent of those polled favoured debt cancellation of some sort — whether for all borrowers or those most in need — although student loans did not rank high among issues that most concerned people in that age group.
Some advocates say Biden's plan still falls short.
“If the rumors are true, we've got a problem,” Derrick Johnson, the president of the NAACP, which has aggressively lobbied Biden to take bolder action, said Tuesday.
“President Biden's decision on student debt cannot become the latest example of a policy that has left Black people — especially Black women — behind,” he said.
“This is not how you treat Black voters who turned out in record numbers and provided 90 per cent of their vote to once again save democracy in 2020.”
A strong opposition
Republicans, meanwhile, see a political upside if Biden pursues a large-scale cancellation of student debt ahead of the November midterms, anticipating backlash for Democrats — particularly in states where there are large numbers of working-class voters without college degrees.
Critics of broad student debt forgiveness also believe it will open the White House to lawsuits, on the grounds that Congress has never given the president the explicit authority to cancel debt on his own.
The Republican National Committee on Tuesday blasted Biden's expected announcement as a “handout to the rich,” claiming it would unfairly burden lower-income taxpayers and those who have already paid off their student loans with covering the costs of higher education for the wealthy.
Biden's long deliberations have led to grumbling among federal loan servicers, who had been instructed to hold back billing statements while Biden weighed a decision.
Industry groups had complained that the delayed decision left them with just days to notify borrowers, retrain customer service workers and update websites and digital payment systems, said Scott Buchanan, executive director of the Student Loan Servicing Alliance.
It increases the risk that some borrowers will inadvertently be told they need to make payments, he said.
“At this late stage I think that's the risk we're running,” he said.
“You can't just turn on a dime with 35 million borrowers who all have different loan types and statuses.”