President Joe Biden announced on Wednesday, August 24, that his administration will cancel up to $20,000 in student loan debt for borrowers.
Biden promised to make the move during his presidential campaign in 2020, but there were questions of how much student loan debt he would cancel per student.
“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,” the president said in a Twitter post outlining some details of his plan.
But Derrick Johnson, president and CEO of the NAACP had been pushing Biden to cancel at least $50,000 in student loan debt per borrower.
High student loan debts, Johnson said, have contributed to racial inequities among Black borrowers who go into default or struggle to pay them back as they pursue careers and the American Dream.
Last Spring Johnson said in a statement that, “In the coming days, President Biden has the opportunity to cancel at least $50,000 per borrower to address the student debt crisis that has burdened Black borrowers and families across America.
“As time continues, the needs of the American people have not — and will not — change without substantial cancellation. If student debt repayments can be paused over and over and over again, there’s no reason why the President cannot cancel a minimum of $50,000.
“Do it to reduce the racial wealth gap, do it to capture the interest of many who will participate in the November election, do it for the future of American families and communities. Every generation will be grateful you did.”
Under Biden’s plan, $10,000 in student loan debt will be canceled for borrowers earning less than $125,000 a year or households earning less than $250,000. The administration contends that 90 percent of the relief will go to households earning $75,000 a year or less. borrowers who also received a Pell Grant will have an additional $10,000 in student loan debt cancelled for a total of $20,000.
Biden also said borrowers with undergraduate loans would be able to cap their payments at 5 percent of their monthly income, which could significantly reduce their bills. Currently, the government caps payments at 10 percent of a borrower’s discretionary income.
Across the country, about 45 million people owe $1.6 trillion for federal loans taken out for college. Most borrowers owe more on student loans than they owe on car loans, credit cards or any consumer debt other than mortgages. Unlike most debts, student loans cannot be written off even if borrowers file bankruptcy.
For Black borrowers, paying off student loans has been especially difficult.
Most Black student loan borrowers are first-generation graduates who do not have adequate financial resources or support from their parents as do their white counterparts.
HBCU graduates and Black female college graduates historically have the largest student loan debt. Black women voters historically are also the most loyal to the Democratic candidates, including Biden.
According to the Brookings Education Institute, today, the average white family has roughly 10 times the amount of wealth as the average Black family, while white college graduates have over seven times more wealth than Black college graduates.
Black borrowers typically owe 50 percent more in student debt upon graduation than their white peers. Four years after graduation, this gap increases to 100 percent, according to the Institute.
More than eight million people, or one in five borrowers with a payment due, had defaulted on their loans before the coronavirus pandemic. Many of those borrowers had small balances on their student loan debts and will now be eligible to have their loans canceled.
Biden also extended a pause from the pandemic on loan payments until the end of the year.
Biden’s critics say widespread debt forgiveness is unfair to those who made sacrifices to pay for college. Republicans say the plan will add to inflation by giving consumers more money to spend.
The Department is also proposing a rule to create a new income-driven repayment plan that will substantially reduce future monthly payments for lower- and middle-income borrowers.
The proposed rule would protect more income from loan payments. It would cut in half, from 10 percent to 5 percent of discretionary income, the amount that borrowers have to pay each month on their undergraduate loans, while borrowers with both undergraduate and graduate loans will pay a weighted average rate.
It would also raise the amount of income that is considered nondiscretionary income and therefore protected from repayment.
The rule would also forgive loan balances after 10 years of payments, instead of the current 20 years under many income-driven repayment plans, for borrowers with original loan balances of $12,000 or less.
Additionally, the proposed rule would fully cover the borrower’s unpaid monthly interest, so that, unlike with current income-driven repayment plans, a borrower’s loan balance will not grow so long as they are making their required monthly payments.
The plan would also simplify borrowers’ choices among loan repayment plans. The proposed regulations will be published in the coming days on the Federal Register, and the public is invited to comment on the draft rule for 30 days.
“Earning a college degree or certificate should give every person in America a leg up in securing a bright future. But for too many people, student loan debt has hindered their ability to achieve their dreams, including buying a home, starting a business, or providing for their family.
“Getting an education should set us free; not strap us down! That’s why, since Day One, the Biden-Harris administration has worked to fix broken federal student aid programs and deliver unprecedented relief to borrowers,” said U.S. Secretary of Education Miguel Cardona.
“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.”