Introduction to the Biden Student Loan Forgiveness Plan
President Joe Biden on August 24, 2022 said his administration will cancel $10,000 in student loan debt for borrowers who make less than $125,000 a year, or $250,000 for taxpayers who file married. In addition, Biden said students who receive the Pell grant will receive an additional $10,000 making the total $20,000 if qualified. President Biden states that this will be the last time zero interest on the loan payments gets extended so students and should be prepared.
The controversial move by Biden should reach over 43 million borrowers and even wipe out loan repayments for some, but it likely won’t address the larger concerns surrounding student debt — namely the cost of college and the large amounts borrowed by students. Nationally, student debt has ballooned to over $1.7 trillion and with the rising cost of colleges it is only going to get higher.
U.S. Secretary of Education Miguel Cardona said in a news release Wednesday that student loan debt has hindered many Americans’ ability to achieve their dreams — including buying a home, starting a business, or even providing for a family. The department has also announced plans to make repayment easier and to help out lower income families by reducing loan repayments to 5% of gross income. This should help out many as prior year, many loan borrows when it came to tax time filed married file jointly to reduce the burden of repayments.
“Getting an education should set us free; not strap us down,” Cardona said. “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.”
One of Biden’s main campaign issues to address leading up to 2020 was to help the students with student loan debt. During many campaigns, many rallied with the thought of full student loan debt cancelation by the administration. Biden repeatedly delayed any major decisions in regards to the amount of how much student loans should be cancelled. With many intense debates about whether debt cancellation would advance economic justice or disproportionately benefit higher-earning Americans as many working-class Americans are struggling. Of course, with inflation already running high, many Americans are worried that this could impact and inflation could rise for the foreseeable future.
Students who already qualify for the Pell grants are on the lower income bracket, coup that with an additional 10k many start to wonder the impact of this student loan debt cancelation. The Pell grants in Texas already provided 6-12k per year in grants and many state colleges at least in Texas offered other grants such as the Texas grant with all of these add up it would seem many Americans are getting the chance to go to college at minimum cost.
The announcement will spark many debates on how the Pell Grant program and support for institutions that serve a high number of students of color will move forward.
The Biden administration announcement also included several other actions related to student loan repayments.
It will extend the pause on repayment, interest and collections until Dec. 31 for borrowers who will still owe payments beyond the cancellations. The pause extends the delay put in place at the start of the pandemic and has been extended many 4 times to help students repay loans.
The department also is proposing to reduce monthly payments for low- and middle-income borrowers which is the biggest change in our opinion. This will help students once graduated a chance to get on their feet and not have to worry about interest rates growing and compounding
The proposal would cut in half — from 10% to 5% of discretionary income — the amount that borrowers have to pay each month on their undergraduate loans. The rule will also forgive loan balances after 10 years of payments — instead of 20 years — for borrowers with original loan balances of $12,000 or less with the key note payments are made on time.
The administration also plans changes that will make it easier for borrowers working in nonprofit jobs or the military to use the Public Service Loan Forgiveness program. The administration said it’s taking steps to hold private schools accountable for high debt and will publish an annual watch list of programs that contribute to high student debt.
Whether these set of changes help the students without impacting the economy remains to be seen. Inflation is been rapidly growing out of control as cost of living is rising leaving many Americans to wonder if any measures are being taken. At least for some students, this will wipe out their whole debt giving them a new lease on life and control for the future. For some, $10,000 is not enough and they want total student loan forgiveness, whether that happens or not it is still wise to plan your finances today because tomorrow could be different.
