Aug. 24 (UPI) — President Joe Biden announced his long awaited plan to tackle student loan debt on Wednesday, cancelling up to $20,000 of debt for those who received Pell Grants.
The president’s plan includes $10,000 in loan forgiveness for borrowers who earn less than $125,000 annually and did not receive Pell Grants.
The plan also extends the pause on federal student loan payments to Dec. 31, and allows undergraduate debt holders to cap repayment at 5% of their monthly income.
The plan will fully cancel student debt for 20 million people, Biden said in his announcement Wednesday.
“That’s 20 million people who can start getting on with their lives,” Biden said. “All this means that people can finally start to crawl out from under that mountain of debt.”
The three parts of Biden’s plan include giving aid for COVID-19-related hardships, making the student loan system more manageable and reducing the cost of college and holding schools accountable when they hike tuition.
Biden said the plan will help as many as 43 million borrowers and entirely wipe away loan debts for 20 million people.
The president has been on vacation for the past two weeks in South Carolina and Delaware. He returned to the White House late Wednesday morning.
“For too many, the cost of borrowing for college is a lifelong burden,” the White House said in a statement ahead of Biden’s announcement.
“Since 1980, the total cost of both four-year public and four-year private college has nearly tripled, even after accounting for inflation. Federal support has not kept up,” it added. “Pell Grants once covered nearly 80% of the cost of a four-year public college degree for students from working families, but now only cover a third.”
The $10,000 figure would fulfill a campaign promise from Biden and mark the largest forgiveness of federal student loans per individual to date. It’s believed that canceling the debt will cost the government about $300 billion.
Canceling $10,000 in debt for many working-class Americans with federal student loans would settle the balances of about a third of borrowers and cut total debt by at least half for another 20%, according to Department of Education data.
As the White House has worked to formulate a plan, both advocates and opponents of wide-scale student loan forgiveness presented Biden with their pitches.
Senate Democratic leader Chuck Schumer and Sen. Elizabeth Warren, D-Mass., both spoke with White House Chief of Staff Ron Klain recently to request that significant amounts of debt be forgiven, the Post reported.
While canceling $10,000 for many Americans satisfies a campaign promise for Biden, some progressive Democrats are likely to think that’s not enough.
Some have called for more debt to be canceled, with the NAACP pressing the administration to cancel up to $50,000 per borrower, citing higher loan burdens on Black Americans.
“$10,000 alone is meager, to say the least — it won’t address the magnitude of the problem,” NAACP President Derrick Johnson said according to the Post.
However, wiping out too much student loan debt carries with it an economic risk.
Lawrence Summers and Jason Furman — prominent Democratic economists who served in prior administrations — have argued that forgiving too much debt runs the risk of worsening inflation, by increasing spending — an issue that Democrats are already facing ahead of the midterm elections in November.
Along with the inflation risk, Summers and Furman say Biden’s plan could end up mostly helping high-income graduates who can afford to pay their loans back.
“This is redistribution, and there’s nothing wrong with redistribution — if it was from the middle to the bottom. Much of this is redistribution from the middle to the upper-middle,” Furman said.
A CNBC poll released Monday found that almost 60% of Americans shared concern that student loan forgiveness could worsen inflation.
About 30% of respondents said there should be no student loan forgiveness for anyone, while 32% were in favor of loan forgiveness for all who have student debt. A plurality, 34%, said that only those in need should have their loans forgiven.
