On Wednesday, President Biden made the announcement that millions of people with student debt have longed for. The government will begin forgiving $10,000 in federal student loan debt for Americans who earn less than $125,000. And, for all Americans, the pandemic-era pause on federal loan payments will continue until January 2023. It's a thrilling day for many who are having difficulty making payments while keeping themselves afloat financially.
Student loan forgiveness has been a talking point for many Democrats for several years, and President Biden made it part of his 2020 campaign platform. Critics of student loan forgiveness often focus on the high earners of Silicon Valley, stating that forgiving debt to those making good salaries seems unfair. But rather than aiming for universal debt forgiveness, the White House has targetted lower-income college graduates and dropouts.
Professor Susan Dynarski, an economist at Harvard University, pointed out in a tweet that $10,000 of forgiveness will wipe out all debt for millions of people. This includes many people who only attended a semester or two of community college. As the default rate for people who dropped out of college, according to a Columbia University study, is 40%, the impact will be immediate.
Thoughts on student debt forgiveness!
$10k will forgive ALL the debt of many millions of borrowers
eg those who went to community college for a semester or two
These are the folks most likely to default 1/N
— Prof Dynarski (@dynarski) May 27, 2022
“I understand not everything I'm announcing today is going to make everybody happy,” Biden said. “But I believe my plan is responsible and fair. It focuses the benefit on middle-class and working families, and helps both current and future borrowers, and it will fix a badly broken system.”
Some people may even qualify to have more of their debt wiped out. Single individuals who have an adjusted gross income on their 2020 or 2021 tax returns of $125,000 or less will qualify. Those who are married and file joint taxes or file as a head of household will qualify if they have an adjusted gross income of $250,000 or less. If someone received a Pell Grant, which is designed to help low-income students go to college, they might be eligible for an additional $10,000 in loan cancellation.
In addition, the White House is also trying to make it easier to people to manage the payments they do have to make. The Department of Education has proposed a new income-based payment plan that would cap payments at 5% of the borrower's monthly income. Current income-based plans typically take 10% to 15% of monthly income. In these cases, the proposal states that any remaining debt would be forgiven after 20 years of payments, or—if the original balance was less than $12,000—after 10 years.
Today’s action of getting student loan debt relief to borrowers is about opportunity. It’s about giving people a fair shot.
It’s about making sure folks have the breathing room they need to buy a house, open a business, start a family, and save for their future.
— President Biden (@POTUS) August 24, 2022
So, what happens next? According to Federal Student Aid, the government already has the income information it needs to automatically forgive debt for 8 million Americans. For anyone else who feels that they qualify, they will need to apply. In the coming weeks, the Biden administration will launch a platform for borrowers to ensure that their most up-to-date income information is available.
As suggested in an informative guide by The New York Times, borrowers should take immediate steps to make sure that their loan servicer has their up-to-date contact information on file so that they can receive updates.
This latest effort to relieve the student debt strain that haunts many Americans comes after President Biden already canceled nearly $32 billion in federal student debt. His initial forgiveness measures were aimed at permanently disabled borrowers and students defrauded by for-profit universities.
As President Biden enacted these changes using executive action after it seemed that they might not have enough support to pass through Congress, there is a chance that opponents may challenge his measures in court. If that happens, it could be some time before borrowers see their balances decline, so be sure to keep watch in the coming weeks and months.
President Biden has announced that the government will forgive $10,000 in student loan debt for millions of borrowers.
If you make under $125,000, you're eligible for up to $10,000 in student loan debt relief.
And almost ninety percent of the benefit will go to folks making less than $75,000 a year.
— President Biden (@POTUS) August 24, 2022
The White House's actions are aimed at helping low-income college graduates and dropouts.
Today, my Administration is meeting my campaign commitment with targeted debt relief to folks from families who need it most.
If you received a Pell Grant while in college and make less than $125,000 a year, you are eligible for up to $20,000 in debt reduction.
— President Biden (@POTUS) August 24, 2022
Watch President Biden's full remarks on the sweeping reform.
Tune in as I deliver remarks on my plan to bring student loan debt relief to the millions of borrowers who need it the most. https://t.co/aZCrbeOH7k
— President Biden (@POTUS) August 24, 2022
h/t: [New York Times, CNN]
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