COLIN BINKLEY, SON MIN KIM and CHRIS MEGHERIAN
WASHINGTON (AP) — More than 40 million Americans could see their student loan debt reduced — and in many cases eliminated — under a long-awaited debt forgiveness plan announced Wednesday by President Joe Biden that is historic but politically split step on the eve of the midterm elections.
Fulfilling a campaign promise, Biden is erasing $10,000 in federal student loans for those with incomes below $125,000 a year or families making less than $250,000. It waives an additional $10,000 for those who received federal Pell grants for college.
It’s seen as an unprecedented effort to stem the tide of America’s rapidly rising student debt, but it doesn’t address the broader problem of the high cost of college.
Republicans quickly denounced the plan as an affront to Americans who have paid off their debt and those who have not attended college. Critics across the political spectrum have also questioned whether Biden has the authority to make the move, and legal challenges are virtually certain.
Biden also extended a pause in federal student loan payments for what he called “the last time.” The pause will now last until the end of the year, and repayments will begin in January.
“Both of these targeted actions are for families who need it the most: working people and the middle class have been hit especially hard during the pandemic,” Biden said at the White House on Wednesday afternoon.
Republicans quickly denounced the plan as an affront to Americans who have paid off their debt and those who have not attended college. Critics across the political spectrum have also questioned whether Biden has the authority to make the move, and legal challenges are virtually certain. Even some fellow Democrats have criticized the move, saying it doesn’t help solve the debt crisis.
“In my view, the administration should have targeted the relief even more and offered a way to pay for this plan,” said Sen. Michael Bennett, D-Colo. “While immediate relief for families is important, one-time debt relief does not address the underlying problem.”
The waiver applies to federal student loans used for undergraduate and graduate school attendance, as well as Parent Plus loans. Current college students are eligible if their loans were issued by July 1. For dependent students, their parents’ household income must be below $250,000.
Most people will need to apply for assistance. The Department of Education has income data for a small percentage of borrowers, but the vast majority will need to prove their income through the application process. Officials said applications will be available by the end of the year.
Under Biden’s plan, 43 million borrowers are eligible for debt forgiveness, and 20 million could have their debt completely wiped out, the administration said. About 60% of borrowers are recipients of federal Pell Grants, which are designed for students with the most significant financial need, meaning more than half could qualify for $20,000 in aid.
Sabrina Carton, a 29-year-old media strategist from New York, expects her federal debt to be completely wiped out. When she checked her balance on Wednesday, it was $9,940.
Carton used the loans to attend Tufts University, and with Biden’s plan, she will be able to help her parents pay back the extra thousands they borrowed for her education. As a first-generation college student, she called it a “leveling moment.”
“I know there are people who think it’s not enough, and that’s true for a lot of people,” said Carton, who has already paid off about $10,000 of her loans. “I can say for myself personally and for a lot of people, it’s a lot of money.”
For Braxton Simpson, Biden’s plan is a great first step, but it’s not enough. A 23-year-old MBA student at North Carolina Central University has more than $40,000 in student loans. As an undergraduate, she took a job to minimize her debt, but at $10,000 a semester, the expenses piled up.
As a black woman, she believed a higher education was a requirement for a more stable financial future, even if it meant taking on large amounts of debt, she said.
“In order to get out of many situations that have been systematically part of our lives, we have to go to school,” Simpson said. “And so we ended up in debt.”
The plan does not apply to prospective college students, but Biden is proposing a separate rule that would lower monthly payments on federal student debt.
The proposal would create a new payment plan that would require borrowers to pay no more than 5% of their wages, compared to 10% in similar existing plans. In 10 years he would have forgiven the balance, compared to the current 20 years.
It would also raise the minimum payment, meaning that no one earning less than 225% of the federal poverty level would have to make monthly payments.
It generally does not require congressional approval. But the finalization may take more than a year.
Biden’s plan emerged after more than a year of deliberation as the president faced intense lobbying from liberals who wanted full debt forgiveness, as well as moderates and conservatives who questioned its basic fairness.
The issue was once a popular campaign promise during the presidential primaries, but it has created an almost impossible-to-win situation. Still, many Democrats rallied around it, including those who wanted Biden to exceed $10,000.
“I’m going to continue to push for more because I think it’s the right thing to do,” said Sen. Elizabeth Warren, D-Mass., who called on Biden to grant up to $50,000 per person. “But we need to take a deep breath and understand what it means for the president of the United States to so directly touch so many hard-working, middle-class families.”
Supporters see the repeal as a matter of racial justice. Black students are more likely to take out federal student loans, and for larger amounts, than their white peers.
The NAACP, which has pressed Biden to repeal the $50,000 per-person minimum, said the plan is “one step closer” to eliminating the burden of student debt.
Derrick Johnson, the group’s president, urged Biden to cancel the debt quickly and without red tape for borrowers.
Biden’s decision to impose the income limit has faced objections from some who say adding a detailed means-tested application process could deter some borrowers who need the help the most.
The Biden administration defended the cap as a gatekeeper against wealthier borrowers. Politically, it is designed to counter the arguments of critics who call debt cancellation a handout to the rich. Republicans hit hard with that argument Wednesday, despite the cap.
“President Biden’s inflation is destroying working families, and his answer is to hand out even more government money to the elite with higher wages,” said Senate GOP leader Mitch McConnell. “Democrats are literally using the money of working Americans to try to buy themselves enthusiasm from their political base.”
One of the main political sticking points has been cost: Biden’s new plan, including debt cancellation, a new repayment plan and a payment freeze, would cost between $400 billion and $600 billion, according to the Committee for a Responsible Federal Budget, a nonprofit that advocates for deficit reduction.
Asked about the cost on Wednesday, Susan Rice, Biden’s domestic policy adviser, said: “I can’t give you that off the top of my head.”
There are also lingering questions about the administration’s authority to cancel student loan debt. The Department of Justice issued a legal opinion stating that the Higher Education Opportunity Act gives the Secretary of Education “authority to reduce or eliminate federal student loan principal repayment obligations.”
The legal opinion also concluded that the pardon could be applied on a “classwide” basis in response to the coronavirus pandemic, a national emergency.
However, lawsuits are possible. The Job Creators Network, which advocates for conservative economic policies, said it was considering legal options, and President and CEO Alfredo Ortiz called the president’s efforts “fundamentally unfair” to those who never took out college loans.
AP writers Zeke Miller, Annie Ma and Sharon Lurie contributed to this report.
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