President Biden's Student Loan Forgiveness Plan: Everything Families Need To Know

President Joe Biden announced his plan for federal student loan cancellation. Here's what he is promising, the pushback he has faced, and how borrowers would benefit from his plans.

WASHINGTON, DC - MAY 12: Student loan borrowers gather near The White House to tell President Biden to cancel student debt on May 12, 2020 in Washington, DC. (Photo by Paul Morigi/Getty Images for We, The 45 Million)
Photo: Paul Morigi/Getty Images for We, The 45 Million

Since March 2020, when the world was turned upside down by COVID-19, the federal government has intervened in various ways to support American families facing an economic roller coaster. One of those ways has involved two presidents and Congress hitting pause on loan repayment and interest accumulation to give approximately 37 million of the nation's federal student loan borrowers more spending power on other essentials like child care, rent, food, and gas.

Now, President Joe Biden has officially announced his student loan debt plan. The plan calls for forgiving $20,000 in debt to those who took out Pell Grants and $10,000 for those who didn't receive Pell Grants. Forgiveness applies to those earning less than $125,000 annually. Those with undergraduate loans can cap repayment at 5% of their monthly income. Student loan pause is also extended a final time through December 31. (The pause was extended six times before.)

"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," Biden tweeted on August 24.

Here's what families need to know about President Joe Biden's announcement about student loan forgiveness and repayment and the road to get there.

What President Biden Has Promised Americans on Student Loan Forgiveness

Since his presidential campaign, Biden has been talking about student loan forgiveness, asserting that borrowers should be forgiven up to $10,000 via legislation passed by Congress.

"We should forgive a minimum of $10,000/person of federal student loans, as proposed by Senator Warren and colleagues," said President Biden in a tweet in March 2020. "Young people and other student debt holders bore the brunt of the last crisis. It shouldn't happen again."

Before Wednesday, he had already canceled about $34 billion in student loans through various loan forgiveness programs and a recent settlement agreement in a class-action lawsuit. And with Congress failing to provide relief for the broad majority of borrowers, it was up to President Biden to make the call and come up with a permanent resolution.

Biden's Student Loan Forgiveness Pushback

While President Biden offering student loan forgiveness or outright cancellation seemed like a no-brainer to many Americans who've suffered economically as a result of the pandemic and now inflation, USA Today reports that Republicans see the move as fiscally irresponsible for the federal government, as the debt would be added to the federal deficit.

According to the Committee for a Responsible Federal Budget (CRFB), a nonpartisan, non-profit organization, canceling up to $10,000 in federal student loans per borrower would cost the government roughly $245 billion, depending on the income cap set by the Biden administration.

Some critics of student loan forgiveness on both sides of the aisle fear this could serve to exacerbate inflation, while others point out that incurring the debt could lead to cuts on other important programs, like Social Security or those that support free or reduced school lunches. And they fear that other social initiatives like universal pre-K or guaranteed family leave might struggle to make headway if they're deemed too costly down the road.

Meanwhile, other Democrats and progressives previously ripped Biden's anticipated proposal for falling short. In February 2021, a coalition of lawmakers—Senate Majority Leader Chuck Schumer, Senator Elizabeth Warren, House Financial Services Chairwoman Maxine Waters, and Representatives Ayanna Pressley, Alma Adams, Ilhan Omar, Jamaal Bowman, Mondaire Jones, and Ritchie Torres—introduced a bicameral resolution calling on the President to use executive action to cancel $50,000 in federal student loans for individual borrowers.

And more recently, critics have slammed the $10,000 proposal for failing to address the average amount of debt held by Black Americans. According to June 2022 findings reported by the Education Data Initiative, Black and African American college graduates owe an average of $25,000 more in student loan debt than white college graduates.

"Canceling $10,000 in student debt when the average white borrower is $12,000 in debt, while Black women hold on average over $52,000 isn't just unacceptable, it's structural racism," tweeted Nina Turner, a senior fellow at the Institute on Race, Power and Political Economy.

The Benefits of Student Loan Cancellation for Families

Although the cost of student loan forgiveness or cancellation has stirred up debate, proponents are touting the many ways in which this can support American families.

The Hill reports that the cancellation of up to $10K in student loans would eliminate loan balances for around 15 million people, which is about one-third of all U.S. student loan borrowers, and the U.S. will simultaneously lower its $1.7 trillion outstanding student loan balance. This is important for parents who have their own student debt and ones who have taken out loans for their children to attend college. This comes after a ParentsTogether Action survey found 50% of parents would not be able to meet basic needs of their household if student loan payments were to restart. It also found that 33% of parents said student loan debt has prevented them from buying a home, and 60% have been unable to save for the future.

Many more Americans will of course benefit as well. A group of 529 organizations wrote to President Biden and Vice-President Kamala Harris in May 2022, advocating for "broad-based debt cancellation," noting that it would "boost household wealth, increase small business formation, and provide much-needed economic relief during this historic period of inflation." The coalition states that the executive action could "provide a boost to upwards of 44 million borrowers and the economy."

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