Biden cancels $10,000 in student loan debt for most, extending payment pause

Washington — President Biden announced on Wednesday up to $10,000 in federal student loan debt forgiveness for millions of Americans and an extra $10,000 for low-income borrowers, while extending the pause in monthly payments, providing long-awaited relief weeks before the midterm elections.

According to the plan, which Pres posted on Twitter, borrowers earning less than $125,000 a year or couples earning less than $250,000 a year will be eligible for loan forgiveness of up to $10,000. Recipients of Pell Grants, which are awarded to students with the greatest financial need, will be eligible for an additional $10,000 in aid. Loan payments will also be limited to 5% of monthly income. Current students would also be eligible for debt relief, but prospective students would not, according to senior administration officials who explained details of the plan to reporters by phone.

The president is also delaying student loan payments until the end of the year, and the Department of Education has said this will be the last time the pause is extended. Mr. Biden is scheduled to make a statement on Wednesday afternoon, the White House said.

“True to my campaign promise, my administration is announcing a plan to give working and middle-class families a break as they prepare to resume federal student loan payments in January 2023,” the president tweeted.

Department of Education said nearly 8 million borrowers will have their debt forgiven automatically, while others will have to apply for relief. An application for borrowers seeking debt relief will be made available “in the coming weeks,” the department said, adding that borrowers can subscribe to receive notifications if the application is available.

The income limit will be based on 2020 or 2021 income. If a person’s income was below the limit in 2020 or 2021, they would be eligible, according to a senior administration official speaking to reporters.

Millions of borrowers are expected to qualify for aid under the plan. While more than 43 million borrowers have federal student loan debt, according to the Department of Education, the Federal Reserve says most owe less than $25,000 and a quarter owe less than $10,000.

The decision to forgive student debt came after months of internal White House discussions about the feasibility and cost of doing so. Mr. Biden made student loan forgiveness one of his top priorities during his presidential campaign, and Democrats have pushed the administration to follow through on his promise. Republicans have said Mr. Biden does not have the authority to cancel the debt and his plan is certain to face a flurry of legal challenges.

In anticipation of litigation, the Department of Education issued a memo from General Counsel Lisa Brown with the legal justification for Mr. Biden’s actions. Brown cited a 2003 law known as the HEROES Act, which she said gives the secretary of education broad authority over programs to help students during a national emergency.

“Under the current circumstances, this authority could be used to implement a blanket debt cancellation program designed to address the financial damage caused by the COVID-19 pandemic,” Brown wrote. “The Minister may repeal or amend statutory and regulatory provisions to implement a certain amount of cancellation for borrowers who have suffered financial harm as a result of the COVID19 pandemic.”

A Penn Wharton budget model analysis concluded that $10,000 in student loan debt forgiveness for those earning up to $125,000 a year will cost almost 300 billion dollars in the first year. It also found that more than two-thirds of debt forgiveness would help Americans in the top 60% of earners.

Low-income Americans who have never attended college and are struggling financially amid record high inflation will not benefit from debt cancellation, say critics of student debt cancellation. Erasing some student loan debt also won’t affect the rising cost of college, which has historically outpaced inflation in recent decades.

The pause in student loan repayment began under the Trump administration at the start of the pandemic, and Mr. Biden has suspended student loan repayments a total of four times since taking office. With zero interest rates, the pause has saved federal student loan borrowers more than $1.5 billion each month, April report from the Financial Health Network.

Stephen Portnoy and Christine Brown contributed to this report.

Katherine Watson

Kathryn Watson is a political reporter for CBS News Digital in Washington, DC