President Joe Biden on Wednesday made one of his most controversial education policy decisions to date, announcing he will use executive power to cancel up to $10,000 in student loan debt for most borrowers, and up to $20,000 for federal Pell Grant recipients.
But he also touted a raft of other adjustments and proposals related to the troubled student loan system, which policymakers and higher education advocacy groups have said is in desperate need of reform. And he extended a pandemic-era pause on student loan repayments through the end of the year.
Below we summarize significant Biden administration policies and regulatory moves on loan cancellation, income-based repayment plans and the Public Service Loan Forgiveness program.
Broad loan cancellation
Biden fulfilled a key campaign promise with his cancellation of up to $10,000 for most borrowers and $20,000 for Pell recipients, who come from low- and moderate-income backgrounds. Progressives cheered the move, even though some had demanded more debt forgiveness. Conservatives blasted the president, casting his decision as wasteful and politically motivated, designed to benefit Democrats before the November midterm elections.
The debt forgiveness:
- Only applies to those who earn less than $125,000 a year, or less than $250,000 if a couple files taxes jointly.
- The U.S. Department of Education estimates the action could provide relief to 43 million borrowers, including 20 million who would have their balances completely wiped clean.
- Almost 90% of the relief money will target those who have left college and are earning less than $75,000 annually, the department said.
- Pell Grant recipients comprise more than 60% of borrowers, so many borrowers will qualify for the $20,000 threshold. Almost 95% of Pell recipients come from families earning $60,000 or less a year, the White House said.
- The Education Department believes 8 million borrowers are automatically eligible for loan forgiveness, as the agency possesses their income data. The remaining qualifying borrowers will need to fill out a “simple application,” which the department will make available at least before the end of the year.
- Borrowers can reportedly use their reported income from either 2020 or 2021 to qualify. Loans must have originated before July 1 to be eligible.
- Federal loans taken out for graduate school, or by parents to help pay for their children’s education, qualify for relief. These are known as Grad PLUS and Parent PLUS loans.
- Because of a provision in last year’s federal coronavirus spending package, the debt forgiveness is not counted as federal taxable income.
- Education and Justice department lawyers concluded the Education Department has legal authority to cancel large amounts of debt under a 2003 law because the coronavirus pandemic is a national emergency. They also argued that the Trump administration’s legal interpretation that the executive branch could not pursue mass debt cancellation to be “substantively incorrect.”
Income-driven repayment plans
The administration on Wednesday detailed its regulatory proposal for an income-based repayment system, which uses borrowers’ salaries to determine a monthly payment. Usually after 20 or 25 years, participating borrowers are eligible to have their balances erased. But the current program has suffered from administrative failures, limiting how many have benefited from it, the Education Department has said.
Its proposed rule would:
- Cut in half the amount borrowers would have to pay monthly, from 10% of their discretionary income to 5%.
- Raise the threshold on income that is considered nondiscretionary. This way, no borrower would have to make a monthly payment if they earned under 225% of the federal poverty level, which is about the equivalent of a $15 minimum wage for a single borrower.
- The Education Department would forgive loan balances after a decade of payments, instead of the typical 20 years, for borrowers with original loan balances of $12,000 or less.
- Borrowers’ unpaid monthly interest would be covered, so their loan balances wouldn’t swell as long as they pay back monthly, even when payments are $0 because of their current income.
- Beginning summer 2023, borrowers could allow the Education Department to automatically pull income information, removing a requirement to recertify their salary themselves.
Public Service Loan Forgiveness
The administration already unveiled a draft regulation governing Public Service Loan Forgiveness, which eliminates the debt of borrowers in jobs like government and nonprofit work as long as they make a decade of qualifying payments.
Only a fraction of borrowers had been able to take advantage of the program, however, as it also suffered from poor administrative oversight. To ease the path for borrowers who are pursuing PSLF, the Education Department has temporarily given more flexibility to the types of payments that are eligible. This waiver of the program’s requirements expires at the end of October.
- The department said Tuesday it has approved more than $10 billion in debt relief for over 175,000 borrowers in 10 months.
- Several federal Democratic lawmakers have urged the Education Department to extend the PSLF waiver through at least July 1, 2023, when the department’s proposed rule on PSLF is on track to take effect.
