President Biden said Wednesday he is taking action to cancel up to $10,000 in federal student loan debt for millions of Americans and an additional $10,000 for low-income borrowers while extending a pause on monthly payments, delivering long-awaited relief just weeks before the midterm elections.
Under the plan, borrowers earning less than $125,000 a year, or less than $250,000 a year as a couple, will be eligible for up to $10,000 in loan forgiveness. Recipients of Pell Grants, which are reserved for students with the greatest financial need, are eligible for another $10,000 in relief.
“An entire generation is now saddled with unsustainable debt in exchange for an attempt at least at a college degree,” Biden said in remarks at the White House. “The burden is so heavy that even if you graduate, you may not have access to the middle-class life that the college degree once provided.”
Current students will be eligible for debt relief as well, although future students will not be, according to senior administration officials who explained the details of the plan on a call with reporters. Undergraduate loan payments will also be capped at 5% of monthly income.
Biden said roughly 43 million borrowers will benefit from the debt forgiveness portion of his plan. About 60% of those borrowers are Pell Grant recipients and thus eligible for the $20,000 in cancellation, and 90% come from households making less than $75,000 per year. Biden said nearly 20 million people will have their debt fully canceled.
The president is also deferring student loan repayments until the end of the year, and the Education Department and the president said this will be the last time the pandemic-era pause is extended.
The Education Department said nearly 8 million borrowers will have their debt forgiven automatically, while others will have to apply for relief. The Department of Education will provide a short application for borrowers seeking debt relief in the coming weeks, Biden said. The Department of Education says borrowers can sign up to be notified when the application is available.
Income caps will be based on either 2020 or 2021 income. If a person or couple’s income was below the cap in either year, they will be eligible, a senior administration official said.
The move to forgive student debt follows months of internal White House deliberations over the feasibility and cost of doing so.
Biden made student loan forgiveness one of his top priorities during his presidential campaign.
A Penn Wharton Budget Model analysis concluded that forgiving $10,000 of student loan debt for those earning up to $125,000 a year would cost nearly $300 billion in the first year. It also found more than two-thirds of the debt forgiveness would aid Americans in the top 60% of earners.