Briefing

Everything to know about Biden's student loan decision

What it means for borrowers, and how we got to this point

President Biden has officially issued his long-awaited and consequential student loans decision. Here's everything you need to know:

The latest:

ICYMI: The Biden administration will forgive up to $10,000 in federal student loans for borrowers making under $125,000 a year, the president announced Aug. 24. For Pell Grant recipients earning under that same threshold, the number is even higher — $20,000 in student debt, canceled. Biden also extended the current repayment moratorium, which was set to expire at the end August, until Dec. 31. Borrowers should expect to resume regular payments come Jan. 2023. And finally, the administration cut from 10 percent to 5 percent the amount of discretionary income that borrowers enrolled in an income-driven repayment plan must pay each month.

"All of this means people can start finally to climb out from under that mountain of debt," Biden said in his remarks on the matter. "To finally think about buying a home or starting a family or starting a business. And by the way, when this happens, the whole economy is better off."

Who is eligible for forgiveness?

First and foremost, only borrowers making under $125,000 a year (and married couples or heads of households making less than $250,000 a year) are eligible for the maximum of $20,000 in federal loan forgiveness. Those "seeking debt relief can provide either their 2020 or 2021 incomes" when applying, CBS News writes; 2022 income will not apply, notes The New York Times. Further, only federal student loans, including PLUS loans, are eligible; neither private loans nor Federal Family Education Loans will qualify, the Times adds. Graduate loans qualify as well, though they are not eligible for the extra $10,000 offered to Pell Grant recipients, adds The Washington Post

Current students are eligible only if their parents' income falls below the qualification cap, and if their loans originated before July 1. 

Is there anything borrowers have to do?

Most borrowers will have to apply for forgiveness through the Department of Education. More information on how to do so will be provided in the coming weeks — at least before the end of the year. "The Department of Education will work quickly and efficiently to set up a simple application process for borrowers to claim relief," read a White House statement, per the Times

That said, if you are "already enrolled in some kind of income-driven repayment plan and have submitted your most recent tax return to certify that income, your servicer and the Education Department know how much you earn and you should not need to do anything else," the Times adds. But still, keep an eye out for instructions from your servicer so you don't miss anything.

What is the impact of widespread forgiveness?

According to White House estimates, "roughly 43 million federal student loan borrowers are eligible for forgiveness, and about 20 million could have their debt completely wiped out," the Post summarizes. It will be "the single largest discharge of education debt on record." 

As for the cost of the program, well, the administration hasn't yet figured that out, considering it will depend on the number of individuals who apply for relief. But "by some estimates, however, it could cost $300 billion or more," the Times adds.

Nationwide, 45 million people currently owe $1.6 trillion in federal student loans.

What are some of the arguments for and against canceling student debt?

Debt relief is a hotly contested issue! Those in favor of widespread loan forgiveness claim that student debt delays and prevents borrowers from starting their lives — whether that means buying a house or having children — and also weighs more heavily on Black and Hispanic families, NerdWallet reports. Proponents also typically emphasize that "not all borrowers have degrees that boost earnings."

As for arguments against student debt cancellation, the opposition often claims that forgiveness is unfair to those who have already paid off their loans or didn't go to college; tends to disproportionately benefit wealthy borrowers (those with the most debt often have a graduate degree or higher, leading to higher earnings); and fails to solve the underlying student debt crisis, per NerdWallet. Critics are also worried about inflation, which they fear might worsen under the new policy.

How is this possible?

You might be wondering how Biden has the authority to cancel debt without approval from Congress. And the short answer to that question is, well, it's complicated. The president is actually employing authority pulled from the 9/11-era HEROES Act, which gives the Education Secretary the power to relieve student loan requirements during periods of wartime or national emergency, for example. And in this case, the national emergency is COVID-19, NPR reports. Given his use of executive action, however, legal challenges are expected, Vox notes. Even so, anyone looking to take the administration to court will have to clear the "considerable legal hurdle" known as "standing," which means "not just anyone can file a lawsuit claiming that an executive order is illegal," Vox writes. Rather, a plaintiff must prove they would be "personally harmed by the action" — and "merely being a taxpayer who implicitly owes a percentage of the national debt doesn't count."

How we got here:

Biden had previously said he would decide whether to extend the current student loan repayment pause before it expired on Aug. 31 — but the exact timing of his announcement was otherwise unclear. He had also previously extended the repayment moratorium, which began under former President Donald Trump, a total of four times. 

Meanwhile, relief advocates speculated that Biden might issue the kind of widespread loan forgiveness favored by progressive lawmakers, who had been asking the president to cancel $50,000 or more in loan debt per borrower. But Biden was dodgy on the matter — and seemingly more comfortable with a more targeted $10,000 amount, Forbes writes. 

Has the administration done anything else in the way of debt relief?

In June, the Education Department announced it would cancel $6 billion in loans from about 200,000 borrowers who claimed they were misled and defrauded by their college. And the administration also previously approved $26 billion in loan forgiveness for "about 1.3 million borrowers, including public service employees and defrauded students," CNBC writes.

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