Biden's student loan forgiveness plan: What we know so far

WASHINGTON — President Joe Biden on Wednesday announced his administration’s long anticipated student loan forgiveness plan that will provide up to $20,000 in debt relief to federal loan borrowers who meet certain income thresholds, and extends for one final time a pause on federal loan payments that was enacted in the wake of the pandemic.

Under Biden’s plan, about 43 million federal student loan borrowers will qualify for up to $10,000 in debt forgiveness, according to figures provided by the White House. Borrowers who previously received federal Pell Grants — financial aid provided to low-income students — will now qualify for an additional $10,000 in forgiveness. The White House projects nearly 20 million Americans could see their federal student loan debt completely forgiven under the program.

“It’s about giving people a fair shot,” Biden said in a White House speech outlining the plan. “It’s about making sure folks have the breathing room they need to buy a house, open a business, start a family, and save for their future.”

Biden’s announcement comes days before a pause on federal student loan payments was set to expire on Aug. 31. Biden said the pause, which was enacted in March 2020 under then-President Donald Trump and extended multiple times, will be extended one last time, until Dec. 31, with payments set to resume in January.

Biden’s plan delivers on a campaign pledge to forgive up to $10,000 in federal student loan debt amid soaring education costs, but falls below the $50,000 figure that Senate Majority Leader Chuck Schumer (D-N.Y.) and other Democrats had long pushed for.

Schumer, in a phone interview with Newsday, said he spoke with Biden by phone on Tuesday evening and “urged him to do as much as he could.”

“We just can’t have so many people with bleak outlooks on their future because this debt is hanging on their shoulders,” Schumer said, adding that he would continue to push for the White House and Congress to act on additional relief.

Biden’s plan also includes reforms to income-based loan repayment programs, and will allow undergraduate borrowers to cap repayment at 5% of their monthly income, compared to the current 10% standard.

Republicans have been critical of the plan, with Senate Minority Leader Mitch McConnell (R-Ky.) calling it in a statement “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.”

The White House pushed back on those criticisms, arguing the plan will reach a majority of low-income and middle-income Americans, and will not benefit the top 5% of income earners in the country.

While Biden said more details on the plan would continue to be rolled out in the coming weeks, here is what we know so far:

Who is eligible?

Borrowers who were issued federal student loans on or before June 30, 2022, and earn less than $125,000 in individual income or couples who file their taxes jointly who earn less than $250,000 will qualify for up to $10,000 in debt relief, said White House domestic policy adviser Susan Rice at a Wednesday news briefing.

Current students who are claimed by their parents for tax purposes will qualify as long as their parents’ income falls below the cap and their loans were initiated before July 1, a senior administration official told reporters in a Wednesday phone briefing.

Pell Grant recipients will be eligible for an additional $10,000 in relief for a total of $20,000 in debt forgiveness.

Private loan borrowers are not eligible for the reprieve.

Are postgraduate loans eligible for forgiveness?

Graduate school loans are eligible for up to $10,000 in debt forgiveness if they are federally subsidized loans such as those provided through the Grad PLUS program, said a senior administration official on a call with reporters.

How do I apply for loan forgiveness?

The Department of Education said in a statement it will “launch a simple application in the coming weeks” that will be available “before the pause on federal student loan repayments ends on December 31st.”

The department has set up a web page where users can sign up for updates at StudentAid.gov/debtrelief

About 8 million borrowers may be eligible for automatic relief if they are already enrolled in income-based debt repayment programs that required previously submitting income verification forms to the Department of Education’s Federal Student Aid (FSA) office, according to the department.

Will Biden’s plan face legal challenges?

The White House unveiled Biden’s plan citing authority given to the Department of Education by Congress in the wake of the 9/11 attacks to address student loan debt for “economically distressed” Americans amid national emergencies, but some policy analysts have raised concerns the plan may be subject to legal challenges.

The Third Way, a centrist Democratic think tank based in Washington, said in a statement “we are still extremely concerned that these actions will be struck down in court.”

“We hope that Congress will remove the legal shadow over this action by passing legislation to enshrine it,” said Lanae Erickson, the group’s senior vice president for social policy, education and politics, in a statement.

The Department of Education’s legal counsel Lisa Brown, in a five-page memo issued Tuesday, defended the department’s legal authority to enact a “targeted” debt cancellation program, saying the HEROES Act of 2003, passed in response to the 9/11 attacks “grants the Secretary authority that could be used to effectuate a program of targeted loan cancellation directed at addressing the financial harms of the COVID-19 pandemic.”

How much will this cost the federal government?

Rice repeatedly balked at detailing how much the plan will cost the federal government, but an analysis released by the University of Pennsylvania’s Penn Wharton Budget Model, projected Biden’s plan could cost $300 billion in the first year.

White House officials and Democrats have countered that the plan will boost the economy by freeing borrowers to spend more.

“It's going to allow our younger folks in particular to buy a car, buy a house, plan a career, or just go to the restaurant or go on vacation, and that's going to pump money into the economy at a time when that is still needed,” Schumer said.