Updated August 24, 2022 at 1:49pm
President Joe Biden(Photo by Drew Angerer/Getty Images)
President Biden announced on Wednesday a plan to forgive up to $20,000 in federal student loan debt for borrowers who meet eligibility criteria. The decision will provide some relief to borrowers struggling to repay their loans, especially those with smaller loan balances but who never completed their degrees.
The announced plan is more generous than many observers had expected, with recent stories suggesting only $10,000 would be forgiven. While the proposal is less than many progressive advocates and lawmakers had pushed for, it will likely be viewed as a win. The proposal is more expansive than conservative groups and lawmakers—who largely oppose any cancellation—supported. The decision will likely tamp down calls for broader loan forgiveness, but is unlikely to eliminate the ongoing debate over the status of federal student debt.
“Earning a college degree or certificate should give every person in America a leg up in securing a bright future. But for too many people, student loan debt has hindered their ability to achieve their dreams—including buying a home, starting a business, or providing for their family. Getting an education should set us free; not strap us down! That’s why, since Day One, the Biden-Harris administration has worked to fix broken federal student aid programs and deliver unprecedented relief to borrowers, " said U.S. Secretary of Education Miguel Cardona. "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."
Who gets forgiveness?
Under the announced plan, Students who received Pell Grants while in college will receive up to $20,000 in total forgiveness, with the $10,000 in forgiveness for all other borrowers who meet the income criteria. Borrowers who earn up to $125,000 ($250,000 for couples) will be eligible. This approach will focus 90% of the debt relief on households earning under $75,000 a year. The administration estimates the decision will eliminate debt for 20 million borrowers, with 43 million eligible for some amount of forgiveness. Many borrowers with smaller student loans were unable to complete their degrees and often ended up worse off than if they had never started college, trying to pay back student loans without the benefit of the increased earning power that a degree provides.
Biden promised to forgive $10,000 in federal student loans during the presidential campaign, so today’s announcement follows through on that promise. There remain significant questions as to whether this will be enough to satisfy those who have been pushing for forgiving a larger amount or wiping out federal student loans altogether and what policymakers and others who were opposed to more forgiveness might do in response.
Implementation Process
There have been concerns that implementing broad based loan forgiveness will present significant challenges. ED has said that up to 8 million borrowers may be able to receive forgiveness automatically based on income data it already has access to, which would speed up the process for a large number of borrowers. Borrowers who do not receive automatic forgiveness will have to complete a short form that will be made available before student loan payments restart.
Fortunately, due to provisions included in the American Rescue Plan last year, any student loans forgiven will not be considered taxable income by the IRS.
Loan forgiveness has raised hackles on the right, and drawn opposition in editorials, including one from the New York Times editorial board opposing the idea. Republican lawmakers have come out strongly against any kind of broad loan forgiveness through executive action, going so far as to introduce a bill in the Senate that would have prevented Biden from canceling any student loan debt through executive action. The bill had no hope of becoming law, but did message the strength of republican opposition to student loan forgiveness.
Many advocates and Democrat politicians, including senators Chuck Schumer and Elizabeth Warren, have pushed for much larger forgiveness amounts, with $50,000 the most commonly touted number. Biden has repeatedly shown discomfort with that level of debt cancellation. Progressives have warned that democrats stand to lose younger voters during the upcoming midterms if they do not take more action on student loan forgiveness.
What Does this mean for Restarting Student Loan Payments?
Payments on most federal student loans are currently paused, as part of the announcement on debt forgiveness, Biden also said the pause would be extended one more time, until December 31, 2022.
Extending the pause should provide the administration time to figure out implementation of loan forgiveness.
What about new students?
Providing debt forgiveness to current student loan borrowers is undoubtedly welcome news, but it does not change the dynamics of college prices for incoming students. Students starting classes in the coming weeks will face the same financial challenges as those receiving forgiveness now. The proposal to provide free community college in Build Back Better was stripped out of the bill in an attempt to get enough support to pass it. That failure means there is no politically viable national plan for reducing the price of college for tomorrow’s students.
Pairing forgiveness with a forward-looking policy to make college more affordable for incoming students might have been smarter politically. But, advocates have focused on loan forgiveness as the first step in reforming higher education funding. Partially because it could be enacted through executive action rather than through Congress, where opposition to the size of Build Back Better from Senators Manchin and Sinema made progress on Biden’s legislative agenda a challenge.
Many student loan borrowers will be celebrating today. Eliminating the debts of 20 million borrowers and providing some loan forgiveness for 43 million, will provide a huge amount of relief to those struggling to repay their student loans.
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