People who took out federal student loans to pay for their college education, and who make less than $125,000 a year, will be off the hook for up to $10,000 in debt under President Joe Biden’s latest order to curb the growing student debt crisis.
One week before the end of a moratorium on payments and interest, the Biden administration has announced that $10,000 in debts will be canceled for millions of borrowers, and the pandemic-era pause on payments – which has been extended seven times over the last two years – will continue through 31 December.
Recipients of Pell grants – a government programme initially meant to support lower-income students from having to pay for college, but has only made a dent in tuition at many schools as higher education costs have exploded – will be eligible to have up to $20,000 in debts canceled in what administration officials described as a targeted measure meant to ensure that borrowers from lower-wealth backgrounds receive the greatest amount of relief.
Speaking on Wednesday from the Roosevelt Room at the White House, Mr Biden noted that the cost of public colleges and universities has tripled in the last four decades, even as higher education has become increasingly important.
He recalled how his late father’s “greatest regret” was not attending college, and how he did not want his son to suffer the same fate.
“He ‘d say: ‘Joey you're gonna be a college man,’ and I’d say: ‘Dad, why does that matter? I mean, you could still get fired if you're a college man’”.
Mr Biden said his father replied: “But they can never take it away from you. They can never take your education away”.
“My dad was like millions of parents all across the country ... he believed – as I do – that education was a ticket to a better life,” he said.
The president said the rising costs of college and the high debt burdens many students incur to attend have made it harder for Americans to buy homes, start families, or establish their own businesses. He compared student debt relief to other pandemic-era economic measures that propped up small businesses and helped Americans with rent and food costs.
“Our approach is why America’s economic recovery was faster and stronger than any other advanced nation in the world. And now it's time to address the burden of student debt the same way,” he said.
Mr Biden said the federal government would resume collecting student loan payments on 1 January 2023 and end the pause in collections imposed along with other relief programs, but he stressed that borrowers would at the same time benefit from the reduction in debt as a result of his actions.
“By resuming student loan payments at the same time as we provide targeted relief, we're taking an economically responsible course,” he said. He added that ”independent experts” believe both actions will provide “real benefits” to American families without contributing to inflation.
Roughly 43 million federal student loan borrowers will be eligible for relief, including 20 million who are eligible to have their debts canceled completely, according to a senior White House official who briefed reporters on Mr Biden’s plans.
The White House estimates that the vast majority of relief through the administration’s latest maneuver will go to people with annual incomes of less than $75,000, and that 45 per cent of student loan borrowers will have their debts completely eliminated under Mr Biden’s proposal.
“That's 20 million people who are going to start getting on with their lives. All this means people can start to finally crawl out from under that mountain of debt, to get on top of their rent and utilities, to finally think about buying a home or starting a family or starting a business,” the president said.
Mr Biden also announced a proposal to cut the amount of discretionary income used to calculate payments made as part of income-driven repayment plans from 10 per cent of discretionary monthly income to 5 per cent.
The senior official explained that a “typical single construction worker making $38,000 a year with a construction management credential” would see payments drop to $31 a month compared to the $147 they pay now. They added that borrowers will be allowed to permit the Department of Education to automatically access their income tax information so they will not have to rectify their income each year.
“Once a borrower is enrolled, it will be much easier to stay enrolled and receive credit that they're due,” the official said.
Mr Biden’s announcement fulfills a campaign-trail promise he made more than two years ago when he pledged that he would cancel $10,000 in student loan debt per borrower if elected, though debt relief advocates and progressive lawmakers have urged him to cancel all debts and reject means-testing barriers in broad relief measures.
In November 2020, the president called on Congress to “immediately” provide some relief for millions of borrowers saddled by growing debt.
“[Student debt is] holding people up,” he said at the time. “They’re in real trouble. They’re having to make choices between paying their student loan and paying the rent.”
More than 40 million Americans hold roughly $1.9 trillion in student loan debt, most of which is wrapped up in federal loans. The average balance is $37,667, according to the Education Data Initiative.
Since March 2020, with congressional passage of the Cares Act, most borrowers have not had to make monthly payments on their student loan debt, with interest rates set at zero per cent. That pause has been extended seven times, including four times by President Biden, most recently in April.
Mr Biden said he understands that many will criticise his administration for not canceling enough student debt, while some will not want him to do anything at all.
But he nonetheless called the plan “responsible and fair,” and he hit back at Republicans who’ve criticised the idea of student debt relief as a handout to undeserving elites by noting that none of his critics batted an eye when business loans were forgiven in other pandemic-era programs.
“I will never apologize for helping Americans ... especially not to the same folks who voted for a $2 trillion tax cut that mainly benefited the wealthiest Americans and the biggest corporations, that slowed the economy, didn't do a whole lot for economic growth, and wasn't paid for and racked up this enormous deficit,” he said. “Just as we've never apologized when the federal government forgave almost every single cent of over $700bn in loans to hundreds of thousands of small businesses across America during the pandemic”.
“No one complained that those loans caused inflation. A lot of these folks in small businesses are working in middle-class families. They needed help and it was the right thing to do,” he said.
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