Student loan debt has emerged as a major financial crisis in the United States over the past couple decades. Total student debt now exceeds $1.7 trillion, making it the second highest consumer debt category behind only mortgages. This debt burden is weighing down millions of Americans and preventing them from buying homes, starting families, changing careers, and more.
On the campaign trail, President Biden made addressing the student debt crisis one of his key issues. He promised to provide relief to struggling borrowers through loan forgiveness programs and other reforms. Now in office, Biden has taken major action on this front by announcing a sweeping federal student loan debt forgiveness plan.
Details of Biden’s Loan Forgiveness Plan
In August 2022, President Biden announced a plan to forgive some federal student loan debt for tens of millions of Americans. The plan will provide up to $10,000 in student loan forgiveness for borrowers who earn less than $125,000 a year, or $250,000 for couples. Recipients of Pell grants, which are reserved for undergraduates with the most significant financial need, will be eligible for up to $20,000 in forgiveness.
Biden’s loan forgiveness plan aims to fulfill a campaign pledge he made in 2020 when he promised to provide student debt cancellation of at least $10,000 per person. The plan could provide an enormous financial relief for many who carry student loans, as the average federal student loan debt is around $37,000. This one-time debt cancellation applies to loans held by the Department of Education and will be automatically provided to qualifying federal loan borrowers without any application needed.
The White House estimates that Biden’s loan forgiveness plan will eliminate the full remaining balance for around 20 million borrowers. Over 40 million Americans are expected to benefit in total. The administration says nearly 90% of the benefits will go to those earning less than $75,000 per year. This sweeping action is intended to help working and middle class Americans overcome the burden of student debt that has prevented them from buying homes, starting small businesses, and saving for retirement.
Eligibility Requirements
To be eligible for Biden’s Student loan forgiveness plan, borrowers must meet certain income requirements and have specific types of federal student loans.
Income Limits
- Only individual borrowers who earned less than $125,000 in either 2020 or 2021 are eligible.
- For married couples or heads of households, the income cutoff is $250,000.
- The income thresholds are based on adjusted gross income.
- Income eligibility is determined based on your most recent tax return information the Department of Education has on file. If your income has changed significantly since then, you can appeal.
- There is no income requirement for borrowers who received a Pell grant while enrolled in college. All Pell grant recipients are eligible regardless of income.
Types of Federal Loans Eligible
- The following federal student loans qualify for forgiveness under Biden’s plan:
- Direct Loans (including PLUS loans taken out by parents or graduate students)
- Federal Family Education Loan (FFEL) Program loans held by ED
- Federal Perkins Loans held by ED
- Defaulted loans are eligible as long as borrowers consolidate them into the Direct Loan program before applying
- Private student loans are not eligible. The loan forgiveness only applies to federal student loans.
Application Process
The application process for Biden’s student loan forgiveness program is straightforward for most borrowers. The application will be available in early October 2022, and borrowers will have until December 31, 2023 to apply.
The Department of Education will be working to automatically provide relief to as many eligible borrowers as possible, without requiring an application. However, it is recommended that all eligible borrowers apply through the official application by the deadline to ensure they receive forgiveness.
Borrowers with federally held loans will be able to complete the application online through the Federal Student Aid website. Only basic information will be required, including name, birthdate, social security number, and contact information. The application will be simple and only take a few minutes to complete.
Borrowers whose loans are privately owned but were originally part of a federal program can also qualify. These borrowers will need to apply and submit documentation that shows they meet the eligibility criteria through the official application process.
Overall, the application will be straightforward, widely available, and borrowers will have over a year to complete it. Applying is highly recommended to guarantee your loans are forgiven under the program.
Expected Impact
The Biden administration estimates that around 43 million federal student loan borrowers will be eligible for some debt forgiveness under this plan. About 20 million borrowers could see their entire remaining balance discharged.
This broad cancellation of federal student loan debt will cost around $300 billion to $980 billion over the next 10 years, according to various projections. The White House has said their plan will cost around $240 billion over the next decade.
The hope is that by providing this financial relief, borrowers will have more disposable income to spend on things like buying homes, starting businesses, and saving for retirement. This increased economic activity could boost GDP by $173 to $337 billion over the next decade, some analysts predict.
Critics argue the plan is too expensive and could further increase inflation. However, supporters say the economic stimulus will outweigh the costs. They also argue it is a moral necessity to help borrowers saddled with excessive debt and rising interest rates.
Response and Reactions
President Biden’s student loan forgiveness plan has received a mixed response since being announced in August 2022.
Supporters Praise the Plan
Many supporters have praised Biden’s plan as an important step in addressing the $1.7 trillion student debt crisis. Over 40 million Americans are expected to benefit from some amount of loan forgiveness, providing financial relief and freeing up income to support the economy.
Advocates argue this is the most significant action on student debt any president has taken. They say Biden is keeping his campaign promise to provide student debt cancellation, allowing borrowers to get out from under crushing loan payments. Many progressives and activists who have long pushed for broad student debt forgiveness welcome Biden’s plan.
Groups representing teachers, minorities, and young people have been particularly supportive. They argue that loan forgiveness will help many who took on loans to improve their lives through education.
Critics Argue It’s Too Limited
However, Biden’s plan has also faced criticism from both sides of the political spectrum.
On the right, many argue that loan forgiveness is unfair for those who never took out student loans or already paid them off. They believe it does not address the root causes of rising tuition and could encourage more borrowing. Some have threatened legal action to block the policy.
On the left, critics say Biden’s plan does not go far enough. They argue that limiting forgiveness to $10,000 ($20,000 for Pell grants) will still leave many borrowers struggling. Activists have demanded Biden fulfill his campaign call for $10,000 in relief for all borrowers, not just those making under $125,000 a year.
Progressives say a bolder plan with broader debt cancellation is needed to make higher education affordable. They vow to continue pushing for more substantial reforms and loan forgiveness.
So while supporters cheer it as an important step forward, critics across the political spectrum argue Biden’s forgiveness plan comes up short of what they believe is needed. The debate reflects the broader controversy surrounding student debt and college affordability.
Legal Challenges
Several conservative-leaning states have filed suits challenging the program, including Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina. “This administration’s unlawful edict will only worsen inflation at a time when many Americans are struggling to get by,” said South Carolina Attorney General Alan Wilson. Beyond states, the Job Creators Network Foundation – representing small business owners – has also sued on grounds the plan exceeds presidential powers under the Constitution.
At this stage, judges have issued mixed rulings on requests to temporarily block the policy while legal proceedings unfold. The Biden administration maintains it is on strong legal footing and will ultimately prevail in court. However, the lawsuits could delay implementation and cast uncertainty over the future of the forgiveness plan. The Supreme Court may ultimately need to weigh in if lower court rulings continue to conflict. For now, the legal wrangling persists even as the application process remains open.
Future of Loan Forgiveness
The Biden administration’s student loan forgiveness plan has sparked intense debate about the future role of broad debt cancellation. With over 40 million Americans holding federal student loans, one-time actions don’t fully address the underlying issues that led borrowing to spiral out of control. So a key question is whether this initial $10,000-$20,000 forgiveness represents a turning point after which loan balances will be managed through periodic cancellation.
Advocates argue broad forgiveness should become an ongoing policy, given that current and future students will continue taking on loans. They contend permanent, systemic changes are needed to prevent debt from again amassing to unmanageable levels. Their proposals range from forgiving a certain amount annually, to eliminating undergraduate loans entirely, to making four-year public colleges tuition-free. Opponents counter that ongoing forgiveness would be prohibitively expensive, unfair to those who repaid their loans, and incentivize overborrowing. They believe reforms should focus on reducing college costs and targeting relief based on financial need.
The ultimate fate of loan forgiveness will depend on several factors. First is the political landscape, including whether progressives demanding more cancellation retain influence. The costs of further relief will also be weighed against other policy priorities. Views differ on how effectively past forgiveness stimulated the economy. And the program’s legal fate could either bolster advocates’ push for permanence or force consideration of alternatives. For now, the one-time debt relief marks a historic shift, but the longer-term solution remains hotly debated.
Other Reform Efforts
In addition to the broad student loan forgiveness plan, the Biden administration has pursued other reforms aimed at alleviating the burden of student debt and making college more affordable.
One key effort is changes to income-driven repayment plans. The administration has proposed a new plan called Expanded Income-Based Repayment. This plan would cap payments at 5% of a borrower’s discretionary income, down from 10% in current plans. The administration says these changes would allow more borrowers to benefit from income-driven plans.
The administration has also proposed changes around interest rates. It has called on Congress to lower the interest rate on new federal student loans so they align with interest rates on Treasury securities. This could potentially save future borrowers thousands of dollars over the life of their loans. The administration is also seeking to provide refunds of excess interest to borrowers who had to make payments during the student loan payment pause.
These additional reform efforts demonstrate the administration’s focus on reducing the burden of student debt through both broad and targeted policy changes. While the loan forgiveness plan has received more public attention, changes to income-driven repayment and interest rates could also provide meaningful relief to borrowers.
Conclusion
The Biden student loan forgiveness plan aims to provide relief to millions of Americans struggling under the burden of student debt. The plan offers up to $10,000 in forgiveness for borrowers making under $125,000 a year, and up to $20,000 for Pell grant recipients.
This forgiveness can make a real difference for many borrowers, providing breathing room in their budgets and helping them get ahead financially. It has the potential to boost the wider economy as well.