Surprising nobody yesterday, President Biden announced that the federal government will forgive up to $10,000 in student loan debt for anyone making less than $125,000 per year and up to $20,000 for anyone with a Pell grant, while also extending the moratorium on making student loan payments through the end of the year.
Individuals with student loan debt after the cancellation will also be able to cap their repayments at 5% of their monthly income, the White House announced. Currently, the income-driven repayment threshold is 10% of an individual’s monthly income.
“All of this means people can start finally to crawl out from under that mountain of debt,” President Biden said in remarks from the White House announcing the plan. “To get on top of their rent and their utilities. To finally think about buying a home or starting a family or starting a business.”
One analysis estimated that the cancellation will cost taxpayers $300 billion during the next 10 years, since the funds that were canceled will not be repaid.
The announcement is expected to completely wipe out the existing student loan debt for about 45% of individuals who were still repaying their loans, representing about 20 million people. In total, the announcement will lower the amount of student loan debt for 95% of borrowers.
In order to take advantage of the offer, individuals will have to submit documentation confirming their income. About 8 million individuals already have verified their income with the Department of Education and will not have to do anything to have the $10,000 wiped off their balances.
Nearly one-third of individuals with student loan debt do not have a degree to show for it, the White House noted. About 16% of borrowers are in default, including one-third of senior citizens.
There were some concerns that cancelling such a massive amount of loans at one time could lead to a jump in inflation, but economists were non-committal about what they think will happen once individuals start seeing their balances and monthly payments drop.
“That impact will be spread out over time, so I don’t think it’s going to be a massive sudden infusion in the economy,” said Kevin Miller, associate director of higher education at the Bipartisan Policy Center, a nonpartisan think tank, in a published report. “It’s possible that when millions of borrowers look at their balance sheets and see their balance drop, that we might get sort of an exuberant moment of spending and people celebrate, but I think it’d be really hard to predict how big of an impact that would be.”
Republicans were quick to criticize the plan.
“President Biden’s student loan socialism is a slap in the face to every family who sacrificed to save for college, every graduate who paid their debt, and every American who chose a certain career path or volunteered to serve in our Armed Forces in order to avoid taking on debt,” said Senate leader Mitch McConnell [R-Ky.], in a published report. “This policy is astonishingly unfair.”
