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Biden to cancel up to $10K in federal student loan debt for certain borrowers and up to $20K for Pell Grant recipients

NBC News 8/24/2022 Lauren Egan and Kristen Welker and Ali Vitali
© Provided by NBC News

WASHINGTON — President Joe Biden announced Wednesday that he will cancel $10,000 in federal student loans for millions of borrowers, following through on a campaign promise to address the burden of student debt.

Borrowers who earn less than $125,000 a year, or $250,000 for couples who file taxes jointly, will be eligible for debt cancellation. Pell Grant recipients, who make up the majority of student loan borrowers, will be eligible for an additional $10,000 in debt relief, for a total of $20,000.

Biden is also extending the payment pause on federal student loans for a final time through Dec. 31. It was previously slated to expire on Aug. 31.

Speaking at the White House, Biden described how the cost of higher education has grown significantly over the past few decades.

“An entire generation is now saddled with unsustainable debt in exchange for an attempt at least at a college degree,” Biden said. “The burden is so heavy that even if you graduate, you may not have access to a middle class life that a college degree once provided.”

Borrowers can qualify for debt forgiveness based on their income in either the 2020 or 2021 tax year. In order to receive relief, most qualified borrowers will need to fill out an application with the Education Department, which said it will make the forms available in the coming weeks.

The debt forgiveness applies to undergraduate, graduate and Parent Plus loans. Current students can also qualify, but students who were claimed as dependents will be eligible based on their parent’s income rather than their own.

The highly anticipated announcement comes after months of pressure from Democrats and student debt relief advocates for Biden to use his presidential authority to cancel student debt.

Ahead of the announcement, the president had come under criticism for waiting until just days before the Aug. 31 deadline to announce an extension of the loan payment moratorium, leaving millions of borrowers unclear about whether they would have to start making payments for the first time in more than two years.

Biden on Wednesday also announced a new income-driven repayment plan that would cap monthly payments for undergraduate loans at 5% of a borrower’s discretionary income, down from the current rate of 10% under most existing plans.

The White House said that 43 million student loan borrowers will benefit from the president’s actions, and as many as 20 million borrowers will have their full remaining student loan balance wiped out.

Still, the move falls short of the $50,000 in debt forgiveness that some Democrats were calling for, and the narrow scope of the cancellation is likely to frustrate student debt relief advocates who were pushing for broader action. Some advocates also warned that means testing relief plan announced Wednesday would make implementation more challenging and argued that extending the payment pause for a few months would not be enough time to make adjustments to borrowers' balances.

“While this announcement is a major win for many, it is important to stress that $10,000 will leave many others still crushed by debt, and important details will determine who has access to much-needed relief,” said Natalia Abrams, the president and founder of the Student Debt Crisis Center.

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The White House emphasized that the income cap on debt cancellation would ensure the relief was going to middle and low income people, and not high-earning graduates. Roughly 90 percent of those eligible earn less than $75,000, Biden said.

The president also downplayed concerns from Republicans and some Democrats that debt cancellation could make inflation worse. Biden said that resuming student loan payments in tandem with targeted relief would mean more money would start flowing back to the Treasury Department.

“Independent experts agree that these actions taken together will provide real benefits for families without meaningful effect on inflation,” Biden said.

Federal student loan holders haven’t been required to make payments since March 2020, when former President Donald Trump signed the CARES Act, which paused payments through September 2020 and stopped interest from accruing in an effort to alleviate the economic impact of the pandemic.

Trump later took executive action to extend the deferral period through January 2021. Since taking office, Biden has issued five more extensions.

The moratorium doesn’t apply to borrowers with privately held loans.

Roughly 45 million Americans have student debt. The Federal Reserve estimated that in the second quarter of 2022, Americans owed more than $1.7 trillion in student loans.

While most student borrowers owe less than $20,000, people with smaller amounts of debt often have a harder time paying it off because they might not have completed their degree or have degrees with lower earning power compared to those with more debt.

Studies also show that students of color are more likely to take on student debt and struggle disproportionately to pay it back. The highest default rates are among students who attended for-profit institutions.

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