Biden to forgive ,000 in student debt, double for Pell Grant recipients

Biden to forgive $10,000 in student debt, double for Pell Grant recipients

(Bloomberg) — President Joe Biden announced a sweeping student debt relief package that forgives up to $20,000 in loans for some beneficiaries, a move he said would help a generation “in unsustainable debt.”

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“The burden is so heavy that even if you graduate, you may not have access to the middle-class life that a college degree offered,” Biden said Wednesday at the White House.

“I have committed to providing student debt relief. And I am honoring that commitment today,” she added.

Biden also announced a four-month extension of the moratorium on student loan payments, as well as plans to allow borrowers with undergraduate loans to limit payments to 5% of their monthly income.

Taken together, the measures seek to fulfill a Biden campaign promise and please younger, progressive voters, whose support could help Democrats avoid losing their slim majorities in the House and Senate.

The announcement caps a good month for Biden, who has seen the passage of a massive Democratic climate, health and tax package, signs that inflation may be starting to moderate and the unemployment rate falling to pre-pandemic lows. Democrats hope that student loan assistance, as well as the Supreme Court ruling nullifying abortion rights across the country, will drive voters to the polls.

Biden has been under pressure from progressive lawmakers, civil rights groups and labor leaders to forgive higher debt burdens, arguing they are disproportionately carried by black or low-income students. While the final plan falls short of those expectations, most supporters praised the president’s moves.

The $20,000 in debt forgiveness will be applied to loans to those who also receive Pell grants. For most student loan holders, the limit will be $10,000. That number — combined with an income cap of $125,000 for individuals and $250,000 for families — is in line with a level Biden has been weighing in for several months.

The Biden administration will also propose a new rule that limits borrowers to paying more than 5% of their discretionary monthly income in federal undergraduate loans – down from the current 10%. The proposed rule also says that borrowers who earn less than 225% of the federal minimum wage — about $30,577, or what a full-time worker earns $15 an hour — are not required to make payments on their federal undergraduate loans, according to the Department of Education.

The rule requires the government to forgive loan balances of $12,000 or less after the borrower has made 10 years of payments. Currently, borrowers must pay off their loans for two decades and have a balance below that amount to have the debt forgiven.

The proposal would also restrict the accumulation of unpaid monthly interest while borrowers are making payments, so that those benefiting from limited loan payments do not see their overall balances grow.

While pushing for a higher amount of debt relief per borrower, progressive lawmakers hailed the $20,000 forgiveness for Pell grant recipients as a major victory. Broader loan cancellation amounts for low-income people were an important objective.

“With the flick of a pen, President Biden has taken a giant step forward in addressing the student debt crisis by canceling significant amounts of student debt for millions of borrowers,” said Senator Elizabeth Warren and Senate Majority Leader Chuck Schumer. , in a joint statement.

The NAACP, which criticized the $10,000 figure, said the final plan brought them closer to their “ultimate goal of easing the student debt burden.”

“We have a ways to go, but the NAACP is proud that we were able to get President Biden past $10,000, approaching $50,000 and beyond,” said Derrick Johnson, chairman of the group, in a statement.

Other advocates, while celebrating the news, noted that it will not affect all borrowers.

“While this announcement is a huge victory for many, it is important to emphasize that $10,000 will leave many more still crushed by debt, and key details will determine who will have access to needed relief,” said Natalia Abrams, president and founder of the Crisis Center at Student Debt.

The latest pay break would be the last Biden supports, a person familiar with the matter said, meaning payments that had been stalled for nearly two-and-a-half years will resume in January. One more extension will give time to process loan balances and restart a system that is on hiatus, the person said.

It is the seventh extension of the freeze since the Covid-19 pandemic began in March 2020 and has the political benefit of preventing loan payments from starting two months before the midterm elections. The last break in loan payments was scheduled to expire on August 31.

“It’s time for payments to resume,” Biden said Wednesday.

Read more: Biden’s student loan dilemma hits top indebted advisers

Republicans have criticized the move, arguing that it would fuel inflation and put taxpayers at risk.

“President Biden’s student loan socialism is a slap in the face to every family who sacrificed to save for college, every graduate who paid off their debt, and every American who chose a certain career or volunteered to serve in our Armed Forces in order to avoid taking on debt,” Senate Republican Leader Mitch McConnell said in a statement.

Representative James Comer of Kentucky, the most senior Republican on the House Oversight Committee, called the plan “unfair to American workers who do not have a college degree or who have made difficult financial decisions to pay for their college education.”

A senior administration official has countered criticism that the debt cancellation plan could exacerbate inflation, saying the fiscal effects of target relief by restarting payments will be largely offset – and may even reduce inflation in the long run.

Biden’s measures would settle the student debt of about 20 million Americans, according to the official.

To qualify for relief, many borrowers will have to fill out an application that will be available in the coming weeks to check their income levels. About 8 million people have already submitted income information to the Department of Education and may qualify for immediate pardon, the official added.

In his speech outlining the student debt plan, Biden is also expected to discuss ways to make the student loan system more manageable for current and future borrowers by cutting monthly payments in half for undergraduate loans.

The Biden administration argues that the package will help low-income people, with 90% of the relief going to borrowers earning less than $75,000 a year.

The University of Pennsylvania’s Penn Wharton budget model estimated in an analysis released Tuesday that forgiving student loan debt would cost between $300 billion and $980 billion over 10 years, depending on scope.

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