Student loan forgiveness could help more than 40 million

WASHINGTON — More than 40 million Americans were able to… student 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.

Delivering on a campaign promise, Biden will cut $10,000 in federal student loans for those on incomes less than $125,000 a year, or households earning less than $250,000. He cancels an additional $10,000 for those who have 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 those who failed to attend college. Critics across the political spectrum also questioned whether Biden has authority for the move, and legal challenges are almost certain.

Biden also extended a pause on federal student loan payments for what he called “the last time.” The break will now last until the end of the year and repayments will start in January.

“Both targeted actions are for families who need it most: workers and middle class people are being hit particularly hard during the pandemic,” Biden said at the White House on Wednesday afternoon.

The cancellation applies to federal student loans used to attend undergraduate and graduate school, along with Parent Plus loans. Current students are eligible if their loan is provided before July 1. For dependent students, their parents’ household income must be less than $250,000.

Most people will have to apply for the exemption. The Ministry of Education has income data for a small proportion of borrowers, but the vast majority will have to prove their income through an application process. Officials said applications will be available before the end of the year.

Under Biden’s plan, 43 million borrowers will be eligible for some debt forgiveness, with 20 million who could have their debt forgiven in full, the government said. About 60% of borrowers are recipients of federal Pell Grants, which are reserved for students in the greatest financial need, meaning more than half can get $20,000 in aid.

Sabrina Cartan, a 29-year-old media strategist in New York City, expects her federal debt to be wiped out completely. When she checked the balance on 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 pay back the extra thousands they borrowed for her education. As a first-generation student, she called it a “leveling moment.”

“I know there are people who think this isn’t enough, and that’s true for a lot of people,” said Cartan, who has already repaid about $10,000 of her loans. “I can say for me personally and for a lot of people that that’s 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 a college student, she took jobs to keep her debt as low as possible, but at $10,000 a semester, the costs piled up.

As a black woman, she felt that higher education was a requirement to have a more stable financial future, even if it meant taking on huge debts, she said.

“To get out of many of the situations that were systematically part of our lives, we have to go to school,” Simpson said. “And that’s how we get into debt.”

The plan doesn’t apply to prospective 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 that would require borrowers to pay no more than 5% of their earnings, compared to 10% in similar existing plans. It would forgive the remaining balance after 10 years, a decrease from 20 years now.

It would also raise the floor for repayments, meaning that no one earning less than 225% of the federal poverty level should make monthly payments.

As an ordinance, it would not require congressional approval. But it may take more than a year to be finalized.

Biden’s plan comes after more than a year of deliberation, with the president ahead lobbying liberals who wanted far-reaching debt forgiveness, and from moderates and conservatives who questioned its fundamental fairness.

Once a popular campaign pledge during the presidential primaries, the issue created an almost unwinnable situation. Some fellow Democrats criticized the plan on Wednesday, saying it is too expensive and does little to solve the debt crisis.

“In my opinion, the government should have focused aid further and proposed a way to pay for this plan,” said D-Colo Senator Michael Bennet. “While immediate help 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 continue to push for more because I think this is the right thing to do,” said D-Mass. Senator Elizabeth Warren, who had urged Biden to forgive up to $50,000 per 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 pressured Biden to cancel at least $50,000 per person, said the plan is “one step closer” to easing the burden of student debt.

Derrick Johnson, the group’s chairman, urged Biden to cancel the debt quickly and without bureaucratic hurdles for borrowers.

Biden’s decision to impose an income cap runs counter to objections from some who say adding the detailed application process to verify incomes could deter some borrowers who need help most.

The Biden administration defended the cap as a gate against wealthier borrowers. Politically, it aims to refute arguments from critics who call debt forgiveness alms to the rich. Despite the cap, Republicans hit hard with that argument on Wednesday.

“President Biden’s inflation is crushing working families, and his response is to give even more government money away to elites with higher salaries,” said Senate Leader Mitch McConnell. “Democrats are literally using working Americans’ money to try and win some enthusiasm from their political base.”

One of the main political sticking points has been cost: Biden’s new plan, which includes debt cancellation, a new repayment plan and payment freeze, will cost between $400 billion and $600 billion, according to the Committee for a Responsible Federal Budget, a nun. -profit organization that advocates lower deficits.

Asked about the costs Wednesday, Susan Rice, Biden’s domestic policy adviser, said: “I can’t get that off my mind.”

There are also lingering questions about the administration’s authority to waive student loans. The Department of Justice has issued a legal opinion concluding that the Higher Education Student Opportunity Exemption Act gives the Secretary of Education the “power to reduce the obligation to repay the principal balance of the federal student loan debt” or eliminate.

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 nevertheless likely. 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 efforts “fundamentally unfair” to those who have never taken out loans to college.

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AP writers Zeke Miller Annie Ma and Sharon Lurye contributed to this report.

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The Associated Press education team is supported by New York’s Carnegie Corporation. The AP is solely responsible for all content.

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