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Biden Plan: Taxpayers to pay Billions After Administration ‘Forgives’ $10K to $20K in Student Loan Debt per Borrower

(The Center Square) – President Joe Biden announced Wednesday his administration would “forgive” $10,000 in federal student loan debt for those making less than $125,000 per year.

The total income cap is expected to be higher for married couples, likely around double the $125,000 mark, though that has not been confirmed.

For Pell Grant recipients, the debt reduction will total $20,000. The plan will also allow borrowers to cap repayment of their loans at 5% of their income, and it extends student loan repayment “one final time” through December 31 of this year, according to the White House.

“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,” Biden said in a statement.

Image provided by the White House

“The skyrocketing cumulative federal student loan debt—$1.6 trillion and rising for more than 45 million borrowers—is a significant burden on America’s middle class,” Biden said in a statement. “Middle-class borrowers struggle with high monthly payments and ballooning balances that make it harder for them to build wealth, like buying homesputting away money for retirement, and starting small businesses.”

The President announced that the Department of Education will do the following in his statement:   

  • Provide targeted debt relief to address the financial harms of the pandemic, fulfilling the President’s campaign commitment. The Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education, and up to $10,000 in debt cancellation to non-Pell Grant recipients. Borrowers are eligible for this relief if their individual income is less than $125,000 ($250,000 for married couples). No high-income individual or high-income household – in the top 5% of incomes – will benefit from this action. To ensure a smooth transition to repayment and prevent unnecessary defaults, the pause on federal student loan repayment will be extended one final time through December 31, 2022. Borrowers should expect to resume payment in January 2023.

  • Make the student loan system more manageable for current and future borrowers by:
    • Cutting monthly payments in half for undergraduate loans. The Department of Education is proposing a new income-driven repayment plan that protects more low-income borrowers from making any payments and caps monthly payments for undergraduate loans at 5% of a borrower’s discretionary income—half of the rate that borrowers must pay now under most existing plans. This means that the average annual student loan payment will be lowered by more than $1,000 for both current and future borrowers. 
    • Fixing the broken Public Service Loan Forgiveness (PSLF) program by proposing a rule that borrowers who have worked at a nonprofit, in the military, or in federal, state, tribal, or local government, receive appropriate credit toward loan forgiveness. These improvements will build on temporary changes the Department of Education has already made to PSLF, under which more than 175,000 public servants have already had more than $10 billion in loan forgiveness approved.

  • Protect future students and taxpayers by reducing the cost of college and holding schools accountable when they hike up prices. The President championed the largest increase to Pell Grants in over a decade and one of the largest one-time influxes to colleges and universities. To further reduce the cost of college, the President will continue to fight to double the maximum Pell Grant and make community college free. Meanwhile, colleges have an obligation to keep prices reasonable and ensure borrowers get value for their investments, not debt they cannot afford. This Administration has already taken key steps to strengthen accountability, including in areas where the previous Administration weakened rules. The Department of Education is announcing new efforts to ensure student borrowers get value for their college costs.

The decision comes after months of warning of the budgetary impacts over increased inflation and federal debt from the decision.

“Simply extending the current repayment pause through the end of the year would cost $20 billion – equivalent to the total deficit reduction from the first six years of the IRA, by our rough estimates,” the Committee for a Responsible Federal Budget said in a statement. “Cancelling $10,000 per person of student debt for households making below $300,000 a year would cost roughly $230 billion. Combined, these policies would consume nearly ten years of deficit reduction from the Inflation Reduction Act.”