Biden Cancels $10K Student Loans with Additional $10K for Pell Grant Borrowers
Just a week before the student loan repayment pause was set to expire on August 31, the Biden Administration announced new relief on Wednesday, Aug. 24.
As expected by many, the Biden Administration Student Loan Debt Plan extended the pause through the end of the year, with no repayments for any borrowers due until after December 31, 2022. As well, the current administration has taken matters a few steps further by canceling $10,000 worth of debt for any individual holder of student loans that earns under $125,000 a year or households earning under $250,000 a year.
An additional $10,000 will be canceled for anyone who received a Pell grant — per the U.S. Department of Education, these grants are given to any student that “displays exceptional financial need,” thus targeting many lower-income families.
As an official White House statement on the day of the announcement revealed, “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. That has left many students from low- and middle-income families with no choice but to borrow if they want to get a degree.”
Another provision included payments based on income: anyone with undergraduate loans will be able to cap their repayments at 5% of their monthly income when they resume in January of next year. This is half of the 10% benchmark that had been in place until now. According to the White House, this will cut monthly payments by up to $10,000 for most families.
The new plan also enhanced the Public Student Loan Forgiveness program by ensuring that any student loan borrower that has worked in the military, a nonprofit or in local government will receive the correct credits to apply for loan forgiveness.
Biden tweeted the details on the morning of Aug. 24, noting, “In keeping with my campaign promise, my Administration is announcing a plan to give working and middle-class families breathing room as they prepare to resume federal student loan payments in January 2023.”
An official statement from the White House also conceded, “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.”
The Biden Administration contends that these measures will have significant impact for individuals and families that earn the least in America, noting that 90% of this relief package will target those bringing in a salary of under $75,000.
The measure is an extension of Biden’s focal point in his presidency of helping working-class families. In April 2021, he introduced the American Families Plan to invest “in our kids, our families and our economic future,” with part of it proposing four years of free higher education. Though that hasn’t been put into law yet, the new reforms announced today aim to tackle the student loan debt crisis in America.
Though the announcement came with some criticism — the $10,000 cancellation is far from the higher $50,000 amount that had been proposed by Democrats, and some say that the stipulations for earned wage caps exclude some borrowers — it continues Biden’s efforts to make an impact as nearly one in four Americans say they can’t afford their student loan payments, per U.S. News & World Report.
Per CBS, Biden has previously canceled a hefty $32 billion from the existing $1.6 trillion in current outstanding student loans beheld by 43 million people by implementing additional forgiveness options that target public service employees and borrowers that have disabilities. The president has also extended federal student loan repayments several times over the course of the pandemic.
The question remains if the measures will be enough. CBS noted that just 19% of households meet the $125,000 cap, citing analysis from the Urban Institute. Critics say the new plan also does not target the racial disparity in student loan debt. The Urban Institute’s model shows that 62% of the new canceled student loan debt would go to white borrowers while just 25% would go to Black borrowers.
More From GOBankingRates