Biden announces big student loan forgiveness plan
WASHINGTON (AP) — More than 40 million Americans could see their student loan debt reduced — and in many cases eliminated — under the long-awaited forgiveness plan President Joe Biden announced Wednesday, a historic but politically divisive move in the run-up to the midterm elections.
Fulfilling a campaign promise, Biden is erasing $10,000 in federal student loan debt for those with incomes below $125,000 a year, or households that earn less than $250,000. He’s canceling an additional $10,000 for those who received federal Pell Grants to attend college.
It’s seen as an unprecedented attempt to stem the tide of America’s rapidly rising student debt, but it doesn’t address the broader issue — the high cost of college.
Republicans quickly denounced the plan as an insult to Americans who have repaid their debt and to those who didn’t attend college. Critics across the political spectrum also questioned whether Biden has authority for the move, and legal challenges are virtually certain.
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Student loan forgiveness could help more than 40 million Americans
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Like crumbling infrastructure or rising gas prices, student loan forgiveness is one of those far-reaching political issues that affect a huge swath of Americans. Close to 1 in 5 Americans have student loans. That's some 45 million people with a combined $1.75 trillion in student loan debt.
The Biden administration's forgiveness plan is expected to have far-reaching impact. It will relieve $10,000 in loan debt per federal borrower with an individual income under $125,000 and a household income under $250,000; it will provide $20,000 in relief for borrowers that attended college on income-based Pell Grants.
The announcement is welcomed news for many borrowers as the CARES Act—which paused student loan repayments for most people with federal debt—was set to expire on August 31, 2022. In addition to the debt relief, the administration's plan extends that deadline to Dec. 31, 2022.
The plan is a long time coming: President Biden first promised to forgive at least $10,000 in student loan debt on the campaign trail in early 2020 and made the same promise after he won the election in November 2020.
Stacker compiled data from the College Board, the Office of Federal Financial Aid, the National Center for Education Statistics, and the Urban Institute to visualize how student debt has grown over the past 50 years and what $10,000 of loan forgiveness could mean for borrowers.
You may also like: 2-year degrees that go on to earn the least money
Getty Images
Like crumbling infrastructure or rising gas prices, student loan forgiveness is one of those far-reaching political issues that affect a huge swath of Americans. Close to 1 in 5 Americans have student loans. That's some 45 million people with a combined $1.75 trillion in student loan debt.
The Biden administration's forgiveness plan is expected to have far-reaching impact. It will relieve $10,000 in loan debt per federal borrower with an individual income under $125,000 and a household income under $250,000; it will provide $20,000 in relief for borrowers that attended college on income-based Pell Grants.
The announcement is welcomed news for many borrowers as the CARES Act—which paused student loan repayments for most people with federal debt—was set to expire on August 31, 2022. In addition to the debt relief, the administration's plan extends that deadline to Dec. 31, 2022.
The plan is a long time coming: President Biden first promised to forgive at least $10,000 in student loan debt on the campaign trail in early 2020 and made the same promise after he won the election in November 2020.
Stacker compiled data from the College Board, the Office of Federal Financial Aid, the National Center for Education Statistics, and the Urban Institute to visualize how student debt has grown over the past 50 years and what $10,000 of loan forgiveness could mean for borrowers.
You may also like: 2-year degrees that go on to earn the least money
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Student loan forgiveness could help more than 40 million Americans
Emma Rubin // Stacker
Even with $10,000 of student loan forgiveness per federal borrower, most Americans with student loans will still have some debt to repay. But effectively canceling most (or all) student loans for borrowers with the smallest amount of debt would target Americans who are most likely to miss payments. Analysis from the Federal Reserve shows that people with the least amount of education debt often have more difficulty paying it off, likely because borrowers with more debt often have higher levels of education and increased earning power. In fact, from 2020-2021, 21% of borrowers with less than $15,000 in outstanding debt were late on payments, compared to 17% of borrowers with more than $15,000 in debt. The number of borrowers who fell behind on their loan payments temporarily decreased in the fall of 2021 due to COVID-19 relief efforts; however, for many, student loan payback is a long-term challenge: According to data from the Department of Education, it takes borrowers 17 years on average to pay off their student loans.
Emma Rubin // Stacker
Even with $10,000 of student loan forgiveness per federal borrower, most Americans with student loans will still have some debt to repay. But effectively canceling most (or all) student loans for borrowers with the smallest amount of debt would target Americans who are most likely to miss payments. Analysis from the Federal Reserve shows that people with the least amount of education debt often have more difficulty paying it off, likely because borrowers with more debt often have higher levels of education and increased earning power. In fact, from 2020-2021, 21% of borrowers with less than $15,000 in outstanding debt were late on payments, compared to 17% of borrowers with more than $15,000 in debt. The number of borrowers who fell behind on their loan payments temporarily decreased in the fall of 2021 due to COVID-19 relief efforts; however, for many, student loan payback is a long-term challenge: According to data from the Department of Education, it takes borrowers 17 years on average to pay off their student loans.
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Student loan forgiveness could help more than 40 million Americans
Emma Rubin // Stacker
Over the past several decades, the cost of attending college in the U.S. has steadily risen largely due to a reduction of state funding, an increase in university amenities, and unprecedented demand from prospective students. According to the National Center for Education Statistics, average undergraduate tuition rose a full 20% between 2011 and 2021 alone. Tuition at private, nonprofit institutions increased more than tuition at public schools during this time period.
Loan balances rose right alongside tuition, too. Since 1990, the average loan balance at graduation has nearly quadrupled from just under $7,000 to $30,000 in 2020, according to the Education Data Initiative, which looked at averages across all colleges.
Emma Rubin // Stacker
Over the past several decades, the cost of attending college in the U.S. has steadily risen largely due to a reduction of state funding, an increase in university amenities, and unprecedented demand from prospective students. According to the National Center for Education Statistics, average undergraduate tuition rose a full 20% between 2011 and 2021 alone. Tuition at private, nonprofit institutions increased more than tuition at public schools during this time period.
Loan balances rose right alongside tuition, too. Since 1990, the average loan balance at graduation has nearly quadrupled from just under $7,000 to $30,000 in 2020, according to the Education Data Initiative, which looked at averages across all colleges.
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Student loan forgiveness could help more than 40 million Americans
Emma Rubin // Stacker
If a student doesn't want to take on debt, federal grants—financial aid that doesn't need to be repaid—are an attractive alternative. The problem? The amount of federal grant money available to students hasn't kept up with continually increasing tuition or with the growth of federal loans. Moreover, federal grants only cover up to a few thousand dollars per year per student. One of the most common types of grant, the Federal Pell Grant, awarded undergraduate students a maximum of $6,895 for the 2022-2023 school year. The Federal Supplemental Educational Opportunity Grant—which is also awarded to students with exceptional financial need—ranges from just $100 to $4,000 per year. And not all students who are eligible even secure federal grant funding: A recent study found that the high school class of 2021 left $3.7 billion in Pell Grants unclaimed by not filing the FAFSA, a federal form the government uses to determine student eligibility for grants.
Emma Rubin // Stacker
If a student doesn't want to take on debt, federal grants—financial aid that doesn't need to be repaid—are an attractive alternative. The problem? The amount of federal grant money available to students hasn't kept up with continually increasing tuition or with the growth of federal loans. Moreover, federal grants only cover up to a few thousand dollars per year per student. One of the most common types of grant, the Federal Pell Grant, awarded undergraduate students a maximum of $6,895 for the 2022-2023 school year. The Federal Supplemental Educational Opportunity Grant—which is also awarded to students with exceptional financial need—ranges from just $100 to $4,000 per year. And not all students who are eligible even secure federal grant funding: A recent study found that the high school class of 2021 left $3.7 billion in Pell Grants unclaimed by not filing the FAFSA, a federal form the government uses to determine student eligibility for grants.
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Student loan forgiveness could help more than 40 million Americans
Emma Rubin // Stacker
For students who don't come from families that can cover the cost of an undergraduate education, navigating the financial aid application process can be challenging and confusing. Not only do you need to apply to colleges and universities, but you also have to file the FAFSA and sometimes a supplemental form called the CSS Profile to see if you qualify for federal and institutional financial aid. Unless you earn a coveted academic or athletic scholarship, qualify for need-based aid like Federal Pell Grants, or attend a university with a no-loan financial aid policy, you might turn to some form of student loan to cover the cost of your college degree.
According to a survey conducted by Sallie Mae, 47% of families borrowed money to pay for college in 2021. About 40% of outstanding student loan debt is held by people who attended public schools. The rest is held by those who attended private nonprofit and private for-profit schools.
Emma Rubin // Stacker
For students who don't come from families that can cover the cost of an undergraduate education, navigating the financial aid application process can be challenging and confusing. Not only do you need to apply to colleges and universities, but you also have to file the FAFSA and sometimes a supplemental form called the CSS Profile to see if you qualify for federal and institutional financial aid. Unless you earn a coveted academic or athletic scholarship, qualify for need-based aid like Federal Pell Grants, or attend a university with a no-loan financial aid policy, you might turn to some form of student loan to cover the cost of your college degree.
According to a survey conducted by Sallie Mae, 47% of families borrowed money to pay for college in 2021. About 40% of outstanding student loan debt is held by people who attended public schools. The rest is held by those who attended private nonprofit and private for-profit schools.
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Student loan forgiveness could help more than 40 million Americans
AP file
President Joe Biden said Wednesday that his administration plans to forgive up to $10,000 in federal student loan debt for anyone who makes less than $125,000 a year. People who went to college on Pell grants, which are reserved for undergraduates with the most significant financial need, can have up to $20,000 forgiven.
AP file
President Joe Biden said Wednesday that his administration plans to forgive up to $10,000 in federal student loan debt for anyone who makes less than $125,000 a year. People who went to college on Pell grants, which are reserved for undergraduates with the most significant financial need, can have up to $20,000 forgiven.
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Student loan forgiveness could help more than 40 million Americans
AP file
Biden's tweet said the payment freeze will be extended one last time, until Dec. 31. The freeze started in 2020 as a way to help people struggling financially during the COVID-19 pandemic and it's been extended several times since. It was set to expire on Aug. 31.
Interest rates will remain at 0% until repayments start. Under an earlier extension announced in April, people who were behind on payments before the pandemic will automatically be put in good standing.
AP file
Biden's tweet said the payment freeze will be extended one last time, until Dec. 31. The freeze started in 2020 as a way to help people struggling financially during the COVID-19 pandemic and it's been extended several times since. It was set to expire on Aug. 31.
Interest rates will remain at 0% until repayments start. Under an earlier extension announced in April, people who were behind on payments before the pandemic will automatically be put in good standing.
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Student loan forgiveness could help more than 40 million Americans
AP file
Only people making less than $125,000 a year are expected to qualify. People who borrowed through most federal student loan programs are likely to be eligible, while those who have private loans issued by banks or schools probably won't be.
AP file
Only people making less than $125,000 a year are expected to qualify. People who borrowed through most federal student loan programs are likely to be eligible, while those who have private loans issued by banks or schools probably won't be.
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Student loan forgiveness could help more than 40 million Americans
AP file
Details of that have not yet been announced, but keep an eye on the federal student aid website for more details in coming days.
AP file
Details of that have not yet been announced, but keep an eye on the federal student aid website for more details in coming days.
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Student loan forgiveness could help more than 40 million Americans
AP file
About 43 million Americans have federal student debt, and a third of those owe less than $10,000. Half owe less than $20,000. The total amount of federal student debt is more than $1.6 trillion. Nearly one third of all American students take out loans to pay for college, with an average balance of $37,667, according to federal data.
AP file
About 43 million Americans have federal student debt, and a third of those owe less than $10,000. Half owe less than $20,000. The total amount of federal student debt is more than $1.6 trillion. Nearly one third of all American students take out loans to pay for college, with an average balance of $37,667, according to federal data.
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Student loan forgiveness could help more than 40 million Americans
AP file
The debt forgiveness is expected to apply only to those currently holding student debt. But if you’ve voluntarily made payments since March 2020, when payments were paused, you can request a refund for those payments, according to the Federal Office of Student Aid. Contact your loan servicer to request a refund.
AP file
The debt forgiveness is expected to apply only to those currently holding student debt. But if you’ve voluntarily made payments since March 2020, when payments were paused, you can request a refund for those payments, according to the Federal Office of Student Aid. Contact your loan servicer to request a refund.
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Student loan forgiveness could help more than 40 million Americans
AP file
Critics believe the White House will face lawsuits over the plan, because Congress has never given the president the explicit authority to cancel debt. We don't know yet how that might impact the timetable for student loan forgiveness.
AP file
Critics believe the White House will face lawsuits over the plan, because Congress has never given the president the explicit authority to cancel debt. We don't know yet how that might impact the timetable for student loan forgiveness.
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Student loan forgiveness could help more than 40 million Americans
AP file
Once payments resume, borrowers who can’t pay risk delinquency and eventually default.
Once a loan hasn’t been paid for 90 days or more, it’s labeled delinquent and will be reported to national credit reporting agencies, which could hurt your credit rating.
After 270 days, the loan will be considered in default. Consequences vary depending on the type of loan, but can include losing eligibility for additional federal student aid.
If you’re struggling to pay, check if you qualify for an income-driven repayment plan. You can find out more here.
The plan Biden announced Wednesday also includes a provision that allows people with undergraduate loans to cap repayment at 5% of their monthly income.
If you have worked for a government agency or a non-profit organization, you could also be eligible for the Public Service Loan Forgiveness Program, which you can read more about here.
AP file
Once payments resume, borrowers who can’t pay risk delinquency and eventually default.
Once a loan hasn’t been paid for 90 days or more, it’s labeled delinquent and will be reported to national credit reporting agencies, which could hurt your credit rating.
After 270 days, the loan will be considered in default. Consequences vary depending on the type of loan, but can include losing eligibility for additional federal student aid.
If you’re struggling to pay, check if you qualify for an income-driven repayment plan. You can find out more here.
The plan Biden announced Wednesday also includes a provision that allows people with undergraduate loans to cap repayment at 5% of their monthly income.
If you have worked for a government agency or a non-profit organization, you could also be eligible for the Public Service Loan Forgiveness Program, which you can read more about here.
Biden also extended a pause on federal student loan payments for what he called the “final time.” The pause is now set to run through the end of the year, with repayments to restart in January.
“Both of these targeted actions are for families who need it the most: working and middle class people hit especially hard during the pandemic,” Biden said at the White House Wednesday afternoon.
The cancellation applies to federal student loans used to attend undergraduate and graduate school, along with Parent Plus loans. Current college students qualify if their loans were issued before July 1. For dependent students, their parents’ household income must be below $250,000.
Most people will need to apply for the relief. The Education Department has income data for a small share of borrowers, but the vast majority will need to prove their incomes through an application process. Officials said applications will be available before the end of the year.
Biden’s plan makes 43 million borrowers eligible for some debt forgiveness, with 20 million who could get their debt erased entirely, according to the administration. About 60% of borrowers are recipients of federal Pell Grants, which are reserved for undergraduates with the most significant financial need, meaning more than half can get $20,000 in relief.
Sabrina Cartan, a 29-year-old media strategist in New York City, is expecting her federal debt to get wiped out entirely. When she checked the balance Wednesday, it was $9,940.
Cartan used the loans to attend Tufts University, and with Biden’s plan she will be able to help her parents repay the additional thousands they borrowed for her education. As a first-generation college student, she called it a “leveling moment.”
“I know there are people who feel that this isn’t enough, and that is true for a lot of people,” said Cartan, who already has repaid about $10,000 of her loans. “I can say for me personally and for a lot of people, that is a lot of money.”
For Braxton Simpson, Biden’s plan is a great first step, but it’s not enough. The 23-year-old MBA student at North Carolina Central University has more than $40,000 in student loans. As an undergraduate student she took jobs to minimize her debt, but at $10,000 a semester, the costs piled up.
As a Black woman, she felt higher education was a requirement to obtain a more stable financial future, even if that meant taking on large amounts of debt, she said.
“In order for us to get out of a lot of the situations that have been systemically a part of our lives, we have to go to school,” Simpson said. “And so we end up in debt.”
The plan doesn’t apply to future college students, but Biden is proposing a separate rule that would reduce monthly payments on federal student debt.
The proposal would create a new payment plan requiring borrowers to pay no more than 5% of their earnings, down from 10% in similar existing plans. It would forgive any remaining balance after 10 years, down from 20 years now.
It would also raise the floor for repayments, meaning no one earning less than 225% of the federal poverty level would need to make monthly payments.
As a regulation, it would not require congressional approval. But it can take more than a year to finalize.
Biden’s plan comes after more than a year of deliberation, with the president facing strong lobbying from liberals who wanted sweeping debt forgiveness, and from moderates and conservatives who questioned its basic fairness.
AP Photo/Evan Vucci
President Joe Biden speaks about student loan debt forgiveness in the Roosevelt Room of the White House, Wednesday, Aug. 24, 2022, in Washington.
Once a popular campaign promise during the presidential primary, the issue created an almost unwinnable situation. Some fellow Democrats criticized the plan Wednesday, saying it’s too costly and does little to solve the debt crisis.
“In my view, the administration should have further targeted the relief, and proposed a way to pay for this plan,” said Sen. Michael Bennet, D-Colo. “While immediate relief to families is important, one-time debt cancellation does not solve the underlying problem.”
Still, many Democrats rallied around it, including support from those who wanted Biden to go beyond $10,000.
“I will keep pushing for more because I think it’s the right thing to do,” said Sen. Elizabeth Warren, D-Mass., who had urged Biden to forgive up to $50,000 a person. “But we need to take a deep breath here and recognize what it means for the president of the United States to touch so many hard-working middle class families so directly.”
Proponents see cancellation as a matter of racial justice. Black students are more likely to take out federal student loans and at higher amounts than their white peers.
The NAACP, which pressed Biden to cancel at least $50,000 per person, said the plan is “one step closer” to lifting the burden of student debt.
Derrick Johnson, the group’s president, urged Biden to cancel the debt quickly and without bureaucratic hurdles for borrowers.
Biden’s decision to impose an income cap goes against objections from some who say adding the detailed application process to verify incomes could deter some borrowers who need help the most.
The Biden administration defended the cap as a gate against wealthier borrowers. Politically, it’s designed to counter arguments from critics who call debt cancellation a handout for the wealthy. Republicans hit hard with that argument on Wednesday despite the cap.
“President Biden’s inflation is crushing working families, and his answer is to give away even more government money to elites with higher salaries,” Senate GOP leader Mitch McConnell said. “Democrats are literally using working Americans’ money to try to buy themselves some enthusiasm from their political base.”
One of the chief political sticking points has been the cost: Biden’s new plan, including debt cancellation, a new repayment plan and the payment freeze, will cost between $400 billion to $600 billion, according to the Committee for a Responsible Federal Budget, a nonprofit that advocates for lower deficits.
Asked about the cost Wednesday, Susan Rice, Biden’s domestic policy adviser, said, “I can’t give you that off the top of my head.”
There are also lingering questions about the administration’s authority to cancel student loan debt. The Justice Department released a legal opinion concluding that the Higher Education Relief Opportunities for Students Act gives the Education secretary the “authority to reduce or eliminate the obligation to repay the principal balance of federal student loan debt.”
The legal opinion also concluded that the forgiveness could be applied on a “class-wide” basis in response to the coronavirus pandemic, a national emergency..
Lawsuits are likely nonetheless. The Job Creators Network, which promotes conservative economic policies, said it was considering legal options, with president and CEO Alfredo Ortiz calling the president’s effort “fundamentally unfair” to those who never took out loans for college.
