WASHINGTON — President Joe Biden announced Wednesday that he is canceling $10,000 in student debt for individuals earning less than $125,000 annually and extending a pause on loan repayments for all borrowers through the end of the year.
People who received Pell Grants to help cover the cost of college will be eligible for up to $20,000 in loan relief. And a new income-based repayment cap will ensure borrowers pay no more than 5% of their monthly income toward their undergraduate loans as long as they aren’t behind on payments. Some analysts believe that change may prove even more significant than the debt forgiveness.
Lamenting that “an entire generation is now saddled with unsustainable debt” because the cost of higher education has increased so much, Biden described his action as a matter of economic fairness that will “provide more breathing room for people” and boost America’s competitiveness.
“My plan is responsible and fair. It focuses the benefit on middle-class and working families. It helps both current and future borrowers and it will fix a badly broken system,” Biden said. “It’s about opportunity. It’s about giving people a fair shot.”
The overall package, which Biden said will benefit 43 million Americans, is a win for activists who have pushed for such action as a matter of economic fairness. But the amount of debt Biden has decided to erase is less than many activists had sought, complicating an issue the White House hopes will boost Democrats in the midterm election and ensuring criticism from both parties.
Biden, who returned from a two-week vacation Wednesday morning, had vowed to act before Aug. 31, when the latest pandemic-driven moratorium on federal student loan payments runs out. He said this extension would be the last one and that payments would resume in January 2023.
“It’s time for the payments to resume,” he said.
President Donald Trump first suspended payments in March 2020, and Biden has granted four extensions. So far, the suspensions have cost the federal government more than $100 billion. More than 40 million Americans owe a collective $1.6 trillion in federal student loans.
A fight over student loans could slow the Democrats’ recent momentum and threaten their coalition’s cohesion. The president and his party have seen their poll numbers rise in recent months, buoyed by a series of events that have altered the political landscape in their favor.
The Supreme Court’s late June decision overturning Roe v. Wade alienated women across political lines. The high-profile hearings further illuminating Trump’s key role inciting the Jan. 6, 2021, Capitol insurrection received broad television coverage and hardened perceptions of Republicans as the more extreme party. And Democrats’ passage of three major bills — a climate, prescription drug and tax overhaul, new funding to boost domestic manufacturing of microchips and enhanced health care for veterans exposed to toxic chemicals on the battlefield — has shown the public that Biden is far from a do-nothing president.
Before the abortion decision, the Jan. 6 hearings and the flurry of new legislation, some senior Biden aides believed significant student loan debt forgiveness was one of the few measures that could excite the Democratic base and help the party survive a tough election cycle. Despite public and private pressure from Senate Majority Leader Charles E. Schumer, D-N.Y., and Sens. Elizabeth Warren, D-Mass., Bernie Sanders, I-Vt., and Raphael Warnock, D-Ga., Biden has long questioned whether forgiving as much as $50,000 in debt would be prudent.
Schumer spoke by phone with Biden on Tuesday night “to make a final push to the president to cancel as much student loan debt as he can,” according to a Democrat familiar with the conversation. On Wednesday, Schumer and Warren sought to quell criticism from the left, issuing a joint statement heralding Biden’s final decision as a historic first step.
“With the flick of a pen, President Biden has taken a giant step forward in addressing the student debt crisis by canceling significant amounts of student debt for millions of borrowers. The positive impacts of this move will be felt by families across the country, particularly in minority communities, and is the single most effective action that the President can take on his own to help working families and the economy,” their statement said. “No president or Congress has done more to relieve the burden of student debt and help millions of Americans make ends meet. Make no mistake, the work — our work — will continue as we pursue every available path to address the student debt crisis, help close the racial wealth gap for borrowers, and keep our economy growing.”
Some activists also cheered the announcement. “Today, with President Biden’s announcement, 12 million American borrowers have had their educational debts erased,” said Melissa Byrne, executive director of We the 45 Million, a group that advocates for student debt forgiveness. “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.”
But key Democratic constituencies, including young voters, Black Americans and civil rights groups like the National Association for the Advancement of Colored People, have pushed hard for more forgiveness, and may be disappointed.
Derrick Johnson, president of the NAACP, had blasted Biden in a statement Tuesday, stating that if reports of the president having settled on $10,000 in debt forgiveness are correct, “we’ve got a problem,” likening the decision to past federal policies that have been detrimental to Black people.
“Tragically, we’ve experienced this so many times before,” Johnson said. “This is not how you treat the 90% of Black voters who turned out in record numbers to once again save democracy in 2020.”
An administration official, speaking to reporters about the plan Wednesday on the condition of anonymity, said that Biden’s debt forgiveness reflects a clear awareness of the disproportionate impact of loan debt on Black borrowers. The additional loan forgiveness for recipients of Pell Grants, which Black Americans are twice as likely as whites to utilize, was an effort to get the relief “to the people who need it most,” the official said.
Johnson was much more conciliatory in his statement Wednesday after the additional Pell grant forgiveness was announced, stating that Biden’s action “takes us one step closer to the NAACP’s ultimate goal of alleviating the burden of student debt,” expressing pride that “we were able to push President Biden to exceed $10,000" and emphasizing the positive impact, not what wasn’t done. “Americans across the country, including millions of HBCU attendees, will benefit from this decision,” he said.
Biden faces a tricky balancing act, trying to satisfy important Democratic constituencies that want him to do more. But his centrist instincts and the political risk of unilaterally spending billions of taxpayer dollars during a period of record inflation are holding him back.
Biden, in his remarks Wednesday, asserted that the loan forgiveness would not increase the deficit or inflation given that repayments will be resuming next year after a lengthy pause. “I will never apologize for helping working Americans and the middle class, especially not to the people who voted for a $2.2 trillion tax cut that benefited corporations and the wealthy,” he said, referring to the GOP’s 2017 tax law that lowered rates and ballooned the deficit.
Lawrence Summers and Jason Furman, prominent economists who served in prior Democratic administrations, have publicly warned Biden about going too far with student loan forgiveness, which, Summers tweeted Monday, “is spending that raises demand and increases inflation. It consumes resources that could be better used helping those who did not, for whatever reason, have the chance to attend college. It will also tend to be inflationary by raising tuitions.”
Furman blasted Biden’s move as “reckless” in a tweet Wednesday.
Even as some Democrats faulted Biden’s plan as insufficient, Republicans were eager to criticize any forgiveness at all.
Senate Minority Leader Mitch McConnell, R-Ky., bashed the move as “a slap in the face” to working families, and one that will worsen inflation. “Inflation is crushing working families and his answer is to give away even more money to elites with higher salaries,” he said.
Rep. Kevin McCarthy, R-Calif., the top Republican in the House, said in a statement Wednesday that Biden’s “actions are unfair to everyone who didn’t take on student loans or made sacrifices to pay their loans.”
On Tuesday, the Republican National Committee rolled out a new website with a litany of talking points arguing that debt cancellation is a taxpayer-funded “handout” that benefits the rich and hurts the middle class while exacerbating inflation.
Much of the GOP’s data was drawn from an analysis by the Committee for a Responsible Federal Budget, a Washington-based think tank that opposes forgiving student loan debt. According to the organization, extending the current repayment moratorium through year’s end will cost $20 billion; and canceling $10,000 of student debt for households making below $300,000 would cost taxpayers about $230 billion.
Those moves, the organization said, would “wipe out nearly 10 years of deficit reduction from the Inflation Reduction Act” and “boost near-term inflation far more than the IRA will lower it.”
The left-leaning Roosevelt Institute disputed those conclusions, suggesting that the Committee for a Responsible Federal Budget’s analysis was distorted. Black borrowers are especially likely to benefit from loan forgiveness because a disproportionate number of them are forced to take out loans to cover the costs of higher education compared with whites. It concludes that “student debt cancellation will increase the wealth of millions of Americans who need it the most and promote racial equity — all without increasing inflation.”
