President Joe Biden announced today that he’s cancelling $10,000 in federal student loan debt for Americans who earn under $125,000 annually, with up to $20,000 in debt forgiveness for people who had been recipients of Pell Grants. In addition, the pandemic moratorium on federal student loan payments will be extended until December 31, a move that had been widely expected but should still make a lot of borrowers breathe a sigh of relief.
The debt relief fulfills a campaign promise to help people struggling to pay student loans, although it’s short of the $50,000 in debt forgiveness that many Democrats, including Sens. Elizabeth Warren and Chuck Schumer, had called for. Biden announced the basics of the plan on Twitter, saying,
In keeping with my campaign promise, my Administration is announcing a plan to give working and middle class families breathing room as they prepare to resume federal student loan payments in January 2023.
He’ll also offer more details in a speech scheduled for 2:30 PM Eastern time; here is your live video stream:
In addition to the outright loan forgiveness, Biden also announced that folks with undergraduate loans will be able to cap their payments at five percent of their discretionary monthly income, which if you can explain it more clearly than the federal student loan website you should apply for a job with the Education Department. The New York Timesnotes that current income-based repayment plans “generally cap payments at 10 percent of a borrower’s discretionary income.”
The amount of student debt is really astonishing, and I mean not just my own:
Across the United States, 45 million people owe $1.6 trillion for federal loans taken out for college — more than they owe on car loans, credit cards or any consumer debt other than mortgages.
The Times also explains the careful baby-splitting — metaphorical only, one hopes — that went into devising the plan. It follows
months of deliberations in the White House over fairness and fears that it could exacerbate inflation before the midterm elections. The plan will almost certainly face legal challenges, making the timing of any relief uncertain.
The inflation worries, the Times explains, aren’t so much about the cost of the program, but about the potential inflationary effects of freeing up a lot of family budgets from paying quite so much on their student loans each month. For those of us who accumulated a ton of debt in grad school, the economists can rest easy, since we’re fairly sure taking $10,000 off our total debt won’t result in any Ferrari purchases anytime soon.
Also too, the $125,000 income cap ($250,000 for couples filing jointly) may help quiet down the predictable howls from Republicans about Harvard-educated doctors and lawyers getting debt relief. The administration estimates that 90 percent of student debt relief will go to individuals making $75,000 a year or less. Then again, facts never make a difference to Republicans anyway, so we’ll still probably hear them complaining that a lot of wealthy layabout bloggers will be paying slightly less for the rest of their natural lives. Hey, dipwads: All the more reason to expand the safety net, so more of us can live longer to pay our student loans!
The additional debt relief for Pell Grant recipients is another part of the White House effort to target the debt relief to people who need it most, particularly since, as the Washington Post points out,
Seven in 10 college graduates with federal loans also received a Pell Grant, and Pell recipients have on average an additional $4,500 more debt than other college graduates, according to the Institute for College Access & Success, an advocacy organization.
“It’s great to see the president take action to forgive the crushing debt burdens of borrowers from the most disadvantaged backgrounds,” said Lindsay Owens, executive director of the Groundwork Collaborative, a left-leaning think-tank.
Since not everyone has enormous amounts of debt, in fact, the debt forgiveness being announced today should eliminate student debt altogether for roughly half of borrowers.
So how much will the debt forgiveness cost? The Times says the estimate is around $300 billion, but also points out that figure is actually misleading,
because much of that debt was unlikely to ever be repaid. More than eight million people — one in five borrowers with a payment due — had defaulted on their loans before the coronavirus pandemic. Many of those people carried fairly small balances and will now be eligible to have their loans canceled.
On top of that, let’s also keep in mind the administration’s new plan to help people in default repay their loans and repair their credit history, which for many borrowers will now also be easier with $10,000 erased from the total. My gosh, it’s like all this stuff is connected!
So while we’re very much in the camp of those who think debt forgiveness should be much broader, this really is a good start that will help millions of people who have been pinched the tightest by student debts. And actually addressing the full problem will need even more work in the coming years, no matter how much Republicans may insist it’s a simple matter of making everyone pay up. It sounds great, except that tens of millions of Americans can’t do that, not even if their organs are seized and sold.
Also, a quick Moderator Note: Yes, this issue inspires strong feelings. Please note that the commenting rules are very much in effect, and that you should not scream at each other, no matter how certain you may be that another reader is clearly wrong and stupid.
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