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Biden announces long-awaited student debt forgiveness plan; up to $20K will be forgiven

Election 2024 Biden
Posted at 10:06 AM, Aug 24, 2022
and last updated 2022-08-24 18:51:57-04

WASHINGTON (AP) — President Joe Biden on Wednesday announced his long-awaited plan to deliver on his campaign promise to provide $10,000 in debt cancellation for millions of Americans — and up to $10,000 more for those with the greatest financial need.

Tracy Tyler graduated with an associate's degree in 2009 and since then she’s been paying off student loan debt in excess of $102,000.

“I’m 53 years old, unless I win the lottery I don’t see being able to pay $102,000 before I die. It's just an overwhelming thought,” said Tyler.

She is in good standing but said paying off her student loans remain a struggle. “It’s difficult when you have an amount that high to get it to pay down because it just seems like mine doesn’t go down.”

Student loan lawyer Christie Arkovich works with clients such as Tyler, to get their debt down. She said a lot burrowers are putting off starting a family or buying a home.

“One of the things I think is overlooked is this is not a millennial problem this is a problem for every age. Many of our clients are an older generation where they’re nearing retirement and they fear they can't retire because of the student loan debt they have,” said Arkovich.

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.

“It’s helping a certain number of folks get rid of their loans entirely. Some people do have balances that are $10-$20,000 and I think it will help them move on,” said Arkovich.

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.

"He’s extended that deadline to the end of the year which is great but the payments are still going to be there at the end of the year," said Tyler.

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 has 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 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 Aug. 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 their income information, but others would need to fill out a form.

Current students would only be eligible for relief if their loans originated before July 1, 2022. Biden is also set to propose capping the amount that borrowers pay monthly on undergraduate loans at 5% of their earnings.

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 the congressional leadership to those facing tough reelection bids this November, have pushed the administration to go as broad as possible on debt relief, seeing it in part as a galvanizing issue, particularly for Black and young voters this fall.

Democrats are betting that Biden, who has seen his public approval tumble over the past year, can help motivate younger voters to the polls with the announcement.

Although Biden's plan is changed from what 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% of those polled favored 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% of their vote to once again save democracy in 2020."

John Della Volpe, who worked as a consultant on Biden's campaign and is the director of polling at the Harvard Kennedy School Institute of Politics, said the particulars of Biden's announcement were less important than the decision itself.

"It's about trust in politics, in government, in our system. It's also about trust in the individual, which in this case is President Biden," Della Volpe said.

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 by 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."