WASHINGTON—President Biden announced Wednesday that he will write off $10,000 in student loan debt for those earning less than $125,000 a year and pay out another $10,000 to students who receive Pell grants for low-income students, raising tens of millions of dollars. provided financial relief to Americans. .
Debt forgiveness, while less than what some Democrats had asked for, was the result of months of deliberations in the White House over fairness and concerns it could exacerbate inflation ahead of the midterm elections. was done later. The plan will almost certainly run into legal troubles and the timing of bailouts will be uncertain.
and Twitter post Biden outlined details of the plan, saying the pandemic-era student loan suspension, which has been in place since March 2020, will expire at the end of the year.
“In line with my campaign promises, my administration will give working and middle-class families some breathing room as we prepare to resume federal student loan payments in January 2023. We are announcing plans to give,” the president said.
45 million people across the nation owe $1.6 trillion in federal loans taken out for college. That’s more than any consumer debt other than car loans, credit cards, or mortgages. Current students are also eligible for debt relief. Dependents are assessed based on their parents’ income.
Biden has been agonizing over how to deal with student loans for months, making the issue a sticky political issue for him. Biden has come under pressure from progressive Democrats who say debt forgiveness is necessary to address racial disparities in the economy. Republicans and some Democrats argue that spending more money on consumers will fuel inflation. There is
The White House has attempted to address these economic concerns by carefully targeting relief supplies.
Students who receive a Pell grant are eligible for $20,000 in debt forgiveness. About 60% of borrowers receive her Pell grants, with the majority coming from families with an annual income of less than $30,000. The Department of Education estimates that 27 million borrowers are eligible for relief of up to $20,000.
“I was standing in my dorm room when I heard this and I just screamed,” said Marlene Ramirez, who relied on Pell’s grant and other aid to pay for her undergraduate studies. said.
Millions of other borrowers are eligible for $10,000 in debt relief as long as their annual income is less than $125,000 or their household income is less than $250,000. The government claims 90% of the relief will go to households earning less than $75,000 a year.
Ramirez, whose parents immigrated from Mexico, was the first in his family to attend college. She spent two years at her college using Pell’s grant before transferring to the University of California, Los Angeles, where she graduated in 2020 with a bachelor’s degree in anthropology. Did. Scholarships and aids covered her tuition, but she has a $25,000 federal loan that she used to cover her housing and living expenses.
“Now it’s almost gone,” said Ramirez, 25, who is pursuing a master’s degree at the London School of Economics. “I’m shivering right now. This is life changing.”
Biden also proposed various changes to the repayment system that would reduce monthly bills for many borrowers. He seeks to allow those on undergraduate loans to cap their payments to a discretionary 5% of their monthly income, up from the 10% cap currently set by most income-based payment plans. .
He also wants the government to cover the monthly interest of those paying so that borrowers’ balances do not balloon. The current system still accrues interest and many borrowers are stuck in debt despite making monthly payments.
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On the surface, the move could cost taxpayers about $300 billion or more, effectively lending them money that will never be repaid. But since much of that debt is unlikely to be repaid, the actual cost is difficult to calculate and could be even smaller. More than 8 million — her one in five of her overdue borrowers — had defaulted on loans before the coronavirus pandemic. Many of these people have fairly small balances and are eligible to cancel their loans.
Many Democratic lawmakers and progressive groups argued that $50,000 in debt must be forgiven to address economic racial disparity, and black and other nonwhite borrowers average more than their white peers. He cited a report that his loan balance would rise.
Rep. Tony Cardenas, a California Democrat who met with the White House to advocate debt forgiveness, said even limited relief is an exciting factor that Biden’s party needs before the November midterm elections. said it could become
“That’s a lot of young people who can breathe a sigh of relief,” Cardenas said. He said the plan will allow them to “look forward to buying a home soon. They’re looking forward to starting a family sooner.”
He and other members of the Hispanic Caucus ramp up pressure on Biden this spring when he said in a closed-door meeting that he intended to provide some form of debt relief to Americans. Shortly thereafter, the president publicly said he was considering the move and would announce details in the coming weeks.
Inside the White House, however, Biden’s aides debated the political and economic implications of the decision. The president was concerned that the loan cancellation would be seen as an insulting giveaway to those who paid for his or his relatives’ school fees, according to people familiar with his thinking. has no legal authority to proceed with a blanket forgiveness of the loan and should work with Congress instead of taking enforcement action.
Rapid inflation also complicated the process.
“In the midst of quelling Biden inflation, how can the president justify a student loan gift that overlooks the Americans most hurt by inflation?” Way and Means Commission Top Republican Rep. Kevin Brady of Texas said last month:
But Mr. Biden’s economic advisers argued that by resuming loan payments and combining loan forgiveness with income caps, cancellations would have negligible impact on rising consumer prices. The president’s chief of staff, Ron Klein, also advised him that he could inspire him by rescuing disgruntled young voters.
Senate Democrats continued to appeal directly to the White House in the days leading up to the decision. met with Brian Deeds, one of Biden’s top economic advisers, and Klein, and lobbied the White House on student issues. exemption from debt.
Democrats familiar with the matter said Mr. Schumer met with Mr. Biden on Tuesday night and asked him to write off as much debt as possible.
It’s unclear who is in a position to take action in court, but legal challenges are expected. A recent article in the Virginia Law Review argued that the answer may be nobody.
Mary-Pat Hector, a graduate student at Georgia State University, said Biden’s move would help those disappointed by the administration’s failure to meet other policy goals, such as providing two years of free community college. He said it was an important first step to help.
Hector, 23, who has a $50,000 loan from Spelman College, said: “And even though we’re on the ground months away from the midterm elections, people in these communities are thinking, ‘Does my vote really matter?'”
In addition to college debt, Hector said her mother also borrowed money to pay for her education. She criticized the government’s decision to impose restrictions on who gets loan forgiveness based on salary, and said some of her peers have healthy incomes but the potential to borrow to attend college. He pointed out that he also had a responsibility to support a certain younger brother.
“You’re still in inevitable debt from school and you’re still taking care of your family and community,” said Hector, an activist for the organization Rise, which promotes loan forgiveness. I was. “My parents are probably in debt for the rest of their lives to get me into that position. I have to pay them back by making sure my little brother goes to school. It’s your pressure.”