Biden cancels up to $10K in student debt for many borrowers, extends payment pause

President Biden officially announced on Wednesday that his administration is forgiving up to $10,000 in federal student loan debt for borrowers making less than $125,000 annually and $20,000 for Pell Grant recipients, marking the largest forgiveness of the loans per individual to date.

Biden also again extended a payment freeze on federal student loans and interest accrual, butting right up against an Aug. 31 deadline that would have kicked bills back into effect just before November’s midterm elections.

The payment pause is now in effect until Dec. 31 and the White House said the pause is extended “one final time,” indicating that January will mark the end of the years-long student loan payment freeze.

The White House also said that if borrowers have undergraduate loans, they can cap repayment at 5 percent of their monthly income. Current students with loans are also eligible for this debt relief, and dependent students will be eligible for relief based on their parents’ income.

Biden shared the announcement on Twitter and plans to deliver remarks at 2:15 p.m. on Wednesday.

“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 tweeted.

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.

I'll have more details this afternoon. pic.twitter.com/kuZNqoMe4I

— President Biden (@POTUS) August 24, 2022

Pell Grant borrowers also have to make less than $125,000 annually, or $250,000 annually if they are part of a household, to qualify.

Senior administration officials said the plan announced on Wednesday will benefit tens of millions of middle-class Americans. Officials said that if everyone who is eligible claims the relief, 43 million federal student loan borrowers will benefit, and 20 million borrowers will have their debt completely canceled.

“This announcement will help people who by and large came from working families and our working class now,” one official said.

“By targeting relief to borrowers with the highest economic need, this plan helps narrow the racial wealth gap,” the official added.

The Hill had reported on Tuesday that the White House would announce a plan to cancel a chunk of student loan debt and an extension of the existing pause, citing multiple sources. The announcement comes within the smallest window of time borrowers have had to determine when their payments would resume, which has aggravated advocates due to it leaving borrowers in limbo.

Loan payments were first put on hold in March 2020 under former President Trump, and the freeze has since been extended six times. Trump’s order froze the accrual of interest on federal student loans, effectively putting on hold $1.6 trillion in debt owed by more than 40 million Americans.

Officials addressed criticism that student loan forgiveness will have a negative impact on inflation, arguing that these steps largely offset and “it could well be neutral or deflationary.” Republicans have strongly come out against proposals for student debt relief and denounced them as unfair and inflationary.

“The combination of restarting those loan payments and providing targeted debt relief, per the president’s plan, at roughly the same time, will largely offset each other. That’s our view,” an official said.

The Department of Education said in a statement that it will be announcing further details on how borrowers can claim relief in the weeks ahead. Officials said some borrowers will have to submit “a simple application that goes to their income.”

The department also announced it is making changes to the Public Service Loan Forgiveness program, which allows borrowers working in public service to gain progress towards their loans, by allowing more payments to qualify for the program and allowing various deferments and forbearances, such as for those in the Peace Corps.

Additionally, the department will propose a rule to hold career programs accountable through measures such as publishing an annual “watch list” for those with the worst debt levels.

While the cancellation will be celebrated as the most far-reaching move to help student loan borrowers, activists and some Democrats will also likely call for more in student loan forgiveness, like forgiving up to $50,000 per borrower, or overhauling federal loan programs.

The White House has faced fierce pushback at the idea of means-testing to decide which borrowers are granted student loan forgiveness after reports had surfaced that it would limit relief to people earning below $125,000.

Biden had kept his next move on student loans payments, including whether to forgive any amount of debt, largely under wraps, though he told reporters last month that “the end of August” was his timeline for making a decision.

Education Secretary Miguel Cardona said on Sunday that a decision on the matter would come within the week.

The Education Department had said that borrowers will be communicated to “directly” about the end of the freeze, following reporting last month that student loan servicing contractors have been told to not send upcoming billing statements.

Biden has been under pressure from Democrats and advocates to extend the freeze, as well as act on student loan forgiveness. 

Last month, Sen. Bob Menendez (D-N.J.) led a letter signed by over 100 Democrats in Congress calling for Biden to extend the pause, citing the economic hardship some have faced due to the coronavirus pandemic, as well as the squeeze rising inflation has put on consumers nationwide.

In May, Senate Majority Leader Charles Schumer (D-N.Y.) and Sens. Elizabeth Warren (D-Mass.) and Raphael Warnock (D-Ga.) met with Biden to push for loan forgiveness. Advocates and other Democrats, including Schumer, have pressed for forgiveness of $50,000 per borrower or to cancel debt entirely. 

Biden announced in June that he would cancel billions in student debt for former Corinthian College students, which raised pressure on the White House to offer more extensive relief.

During the 2020 campaign, Biden supported forgiving at least $10,000 in federal student loans per person. Over a year ago, he requested a memo from the Department of Education to determine his authority to forgive student debt through executive action. Since then, the administration has not publicly announced if the memo is complete.

—Updated at 12:33 p.m.