President Joe Biden unveiled an unprecedented plan to address the student loan debt crisis on Wednesday, which not only includes the forgiveness of $10,000 for borrowers who earn less than $125,000 but also the elimination of $20,000 for former Pell Grant recipients, a stunning late addition to help those most in need of relief.
In addition, and with only days remaining before a reset was about to occur, Biden again paused current loan payments for 43 million Americans to Jan. 1, 2023, giving needed relief to those struggling with soaring inflation. It is the sixth time there have been extensions since the COVID-19 pandemic began, but those will absolutely end on Dec. 31, Biden said.
“Today’s announcement is about opportunity. It’s about giving people a fair shot,” Biden said. “The cost of education beyond high school has gone up significantly. States have cut back support for their state universities. Pell Grants used to cover 80% of the cost of going to a public four-year college. Today, they cover roughly 32%. Over time, that ticket has become too expensive for too many Americans. … People can start to finally crawl out from under that mountain of debt, get on top of their rent, utilities, to finally think about buying a home or starting a family or starting a business. And by the way, when this happens, the whole economy is better off.”
The late inclusion of Pell eased tension from many liberals, progressives and philanthropic groups, who were worried that the $10,000 limit would be the lone solution proposed by the administration. Sen. Elizabeth Warren (D-Mass.) and others had pushed hard for that threshold to be moved up to $50,000 per student. With that option deemed a longshot, and with Sen. Chuck Schumer (D-N.Y.) among others pressing the president to do more, a new solution was forged.
“We’ve been working towards this day for a long time, and it’s here: President Joe Biden is taking historic action to cancel up to $20,000 of debt for millions and millions of Americans,” Warren said on Twitter. “Make no mistake: This is one of the biggest acts of consumer debt relief in American history, and it will directly help hard-working people who borrowed money to go to school because they didn’t come from a family that could write a big check.”
That double bonus will allow a much more inclusive group students to gain relief, including married couples who file ($250,000 limit). Borrowers with undergraduate loans now can cap interest-driven repayments at 5% of their monthly incomes. A large portion will be freed altogether from student loan debt through a simple application process, Biden said.
“Today, 12 million American borrowers have had their educational debts erased, and millions more will be able to celebrate substantial cancellation that eases the indignity that predatory student loans have had on their lives,” said Melissa Byrne, student debt cancellation activist and executive director of We The 45 Million. “This is a historic first step, establishing the clear authority that the President has to cancel student debt. But this should just be the beginning. We need Congress to send President Biden a bill for free public college and to cancel the outstanding student loan debt that smothers the future of far too many Americans.”
More from UB: Biden dismisses $3.9 billion in loan debt for students defrauded by ITT Institute
However, that authority is likely to face legal challenges by Republicans given that no president has canceled debt in this fashion. Conservatives and economists believe the billions in aid is unwise given the tenuous economy, Biden’s previous spending packages and inflation. Republican leaders sharply criticized the $10,000 assistance plan, saying it will cost taxpayers at least $300 billion while only trimming a nominal amount of the $1.7 trillion in debt owed. (Had the $50,000 proposal happened, the cost would have risen to around $980 billion, according to a study by Penn Wharton.) They also cited a report from the Committee for a Responsible Federal Budget that showed debt elimination could offset any relief that the Inflation Reduction Act was designed to address.
“President Biden didn’t forgive student debt, he chose to shift the burden of the well-off onto the backs of the 87 percent of Americans who chose to not go to college, already paid off their loans, or saved to not take them out in the first place,” Sen. Bill Cassidy (R-La.) tweeted out Wednesday.
Though it is unclear how much of a fiscal impact the additional Pell Grant relief will have on top of the $10,000 in relief, Biden said none of it will impact the national budget or inflation, citing repeated reductions to the federal deficit during his administration.
“I will never apologize for helping working 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,” Biden said. “Let’s be clear. I hear it all the time. How do we pay for it? We pay for it by what we’ve done. Last year, we cut the deficit by more than $350 billion. This year, we’re on track to cut it by more than 1.7 trillion by the end of this fiscal year, the single largest deficit reduction to the single year in the history of America. I understand not everyone thinks that everything I’m announcing is going to make everybody happy. ”
Republicans remained skeptical, concerned that debt forgiveness will not help those who may enter higher education in the future, as spiking tuition and fees may exacerbate ballooning loan totals, even with federal aid. Many institutions that froze tuition costs during the past two years of the COVID-19 pandemic, in fact, have increased them again because of rising inflation and may do so again in the future.
“President Biden’s student loan bailout ignores the true culprit: bloated, self-serving colleges,” Sen. Tom Cotton (R-Ark.) said. “I’ll be introducing a bill to hold these colleges accountable for debt, lower tuition, support non-college career paths, and save the taxpayers billions.”
And some talked about potential politics playing a part in the decision. “Sad to see what’s being done to bribe the voters,” tweeted Mitt Romney (R-Utah). “Biden’s student loan forgiveness plan may win Democrats some votes, but it fuels inflation, foots taxpayers with other people’s financial obligations, is unfair to those who paid their own way & creates irresponsible expectations.”
Some leaders n the right, including Warren, and those with ties to higher education were happy with the help but were hoping for more.
“We note that student loan relief without proposals for systemic reform is incomplete,” said Justin Draeger, CEO of the National Association of Student Financial Aid Administrators. “Loan forgiveness today will not help new borrowers who are enrolling tomorrow. Students and parents need meaningful changes to the student loan system, and we are encouraged that the administration is proposing steps in that direction. NASFAA has also provided a set of recommendations that we hope the Biden administration and Congress will seriously consider.”
Solving the loan debt problem?
So far, the Biden administration has provided $32 billion in loan relief, including aid to public service workers ($10 billion) and those who were victims of fraud by predatory institutions such as ITT and Corinthian ($13 billion). But this massive package is poised to top them all, by a longshot.
One of the key inclusions in the plan is not only placing a 5% cap on monthly income payments“a reduction from the current amount of 10%“but also relieving them from having to pay unpaid interest on top of it. Repayment plans will be streamlined to avoid future confusion about servicing companies and payments. The administration also said it was forgiving loan balances less than $12,000 for borrowers who had paid in for 10 years, instead of 20 years.
“For too many people, student loan debt has hindered their ability to achieve their dreams,” U.S. Secretary of Education Miguel Cardona said. “Getting an education should set us free; not strap us down. Today, we’re delivering targeted relief that will help ensure borrowers are not placed in a worse position financially because of the pandemic, and restore trust in a system that should be creating opportunity, not a debt trap.”
Though the current proposals offer a windfall of relief for borrowers, there is still concern about costs of postsecondary education in the future. Beyond debt reduction, what can be done to lessen the burden on borrowers?
“I do think that institutions should have substantial responsibility for student success and outcomes and that attaching student loan possibilities to student success at an institution could prove beneficial to students and the government,” said Philip Ballinger, Associate Vice Provost for Enrollment and Undergraduate Admissions at the University of Washington, said in a recent study on Best and Worst States for Student Debt published by WalletHub. “Policies should be adapted based on student demographics, for example.”
In his fiscal year 2023 budget, Biden had proposed an increase to Pell of $1,775 by 2023-24 and as much as $13,000 overall”Double the Pell”for borrowers by 2029. He said Wednesday he is still committed to doing that. As for the sixth extension to delay loan payments, a new study done by nonprofit ParentsTogether Action shows that if the Biden Administration had not acted again (the forbearance has been ongoing since March of 2020), half of parents would not be able to afford basic needs, including a third who could not make housing payments.