Borrowers with federal student loans will have $10,000 of their debt canceled, President Joe Biden announced via Twitter Wednesday. Recipients of Pell Grants are eligible for $20,000 of relief. The debt forgiveness comes with some strings attached: To be eligible, individual borrowers must make less than $125,000 or $250,000 as a household. Biden also extended the pause on payments and interest on federal student loans for a seventh and final time to Dec. 31. “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 wrote on Twitter. In addition, borrowers with undergraduate loans will be able to cap their payments at 5% of their monthly income in a proposed new income-driven repayment (IDR) program that is much more favorable to borrowers than the currently available IDR plans. The new payment limit would be half that of the 10% max offered by current IDR plans. Eligible borrowers on the new IDR plan would be forgiven after making payments for 10 years if their original loan balance is less than $12,000, versus 20 per the older plans, and would also be guaranteed that interest would not be applied to their loan balances as long as they make required payments, even if their income is low enough to make their required payment $0. On top of that, required payments would be reduced to $0 for anyone making an income equal to 225% of the federal poverty level, which is equivalent to working full time at $15 per hour. How much borrowers benefit from the forgiveness will vary wildly depending on how much they owe. The average amount owed on student loans was $36,245 in 2021, according to a recent report from the Federal Reserve Bank of New York. For 11.8 million people, or 31.1% of all federal borrowers, Biden’s plan will cancel their remaining student loan debt, according to an estimate by the New York Fed in April. However, the additional money for Pell Grant recipients will likely push that total higher. For others, it will barely make a dent. An estimated 7.4% of borrowers are six figures or more deep in student loan debt, according to the New York Fed. These borrowers account for about one-third of the total for federal loans, according to an analysis by the Brookings Institution. Nearly 8% of borrowers had private–not federal–loans in 2019, according to a report by data and analytics firm MeasureOne. These private student loan borrowers do not receive this student loan debt relief, much like they were excluded from previous relief measures. “People can start to finally crawl out from under that mountain of debt, to get on top of their rent and their utilities, to finally think about buying a home or starting a family or starting a business,” Biden said in a speech at the White House Wednesday. “It helps both current and future borrowers and it will fix a badly broken system.” The loan forgiveness will automatically be given to 8 million borrowers whose income information is on file with the Department of Education. Others will need to apply by filling out a form on Dec. 31. Student debt has had a massive impact on the lives of borrowers, causing them to delay homeownership, marriage, and even having children, various studies have found. Biden’s action fulfilled a proposal from his presidential campaign when he said at least $10,000 per borrower should be forgiven to help people deal with the pandemic’s economic fallout. Biden’s measure took the middle road between progressives who had urged him to forgive $50,000 of student debt, and conservatives who said any student loan forgiveness was a giveaway to the well-educated at the expense of those who never went to school and those who have already paid off their loans. “With the stroke of a pen, President Biden has kept his promise to voters and stepped in after decades of inaction, freeing millions from a long-broken, predatory and abusive student loan system,” Mike Pierce, executive director of the Student Borrower Protection Center, a student loan advocacy group, said in a statement Wednesday. Note: This article has been updated with details from President Biden’s speech on Aug. 24, 2022. Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.
