President Joe Biden announced a federal student loan cancellation on Wednesday that will waive $10,000 for students that make $125,000 or less per year, a plan that could cost the government $300 billion estimates show.
The plan offers four-month extensions of the student loan pause, which will be the final one, with repayments set to restart in January, Biden said during Wednesday’s announcement.
The act also applies another $10,000 cancellation, making for $20,000 in total, for students who are Pell grant recipients.
“In keeping with my campaign promise, my Administration is announcing a plan to give working and middle class families breathing room as they prepare to resume federal student loan payments in January 2023,” Biden tweeted while announcing the plan.
Plan Will Also Cut Monthly Student Loan Payments In Half, Millions Of Borrows To Be Eligible For Relief
The plan also aims to reduce monthly student loan payments by 50 percent and repair the Public Service Loan Forgiveness program, and make the existing student loan system easier to manage for both current and future borrowers.
The proposed federal rule would change income-based repayment for student loans and cut in half the amount borrowers would have to pay each month on their undergraduate loans, “while borrowers with both undergraduate and graduate loans will pay a weighted average rate.”
Meanwhile, the Department of Education plans to announce details on how borrows can apply for this loan relief in the coming weeks, according to CNN.
The application is expected to be available at the end of December, when the pause on repayments ends.
The outlet reports that millions of borrows will be eligible for loan forgiveness automatically based on existing income data.
Thousands of students took to Washington D.C. last month to call for student debt cancellation.
Student Debt Cancellation Could Cost Federal Government $300 Billion, Estimate Show
Although the student debt cancellation will deliver financial relief to millions of Americans, the costs would ultimately fall on the federal government.
CNN reports that the plan could cost Uncle Sam $300 billion, citing an estimate from the Penn Wharton Budget Model. To put that into context, there is currently $1.6 trillion outstanding federal student loan debt.
The Committee for a Responsible Federal budget claims that the amount of outstanding debt will return to that level in just four years if $10,000 per borrower is cancelled, which doesn’t additional relief for tthose that received Pell grants.
The loan cancellation also doesn’t address the real root of the issue, which is the cost of college and higher education.
Biden Announces Student Debt Cancellation Amid Political Pressure From The Left
Schumer and Warren had previously called on Biden to cancel $50,000 per borrower, CNN reports.
On Tuesday, Biden met with the two, alongside Democratic Senator Raphael Warnock of Georgia, a day before his announcement.
Schumer and Warren released a joint statement that called the move “a giant step forward in addressing the student debt crisis.”
“The positive impacts of this move will be felt by families across the country, particularly in minority communities, and is the single most effective action that the President can take on his own to help working families and the economy,” they added.
Meanwhile, Marc Goldwein, senior Vice President and policy director for the Committee for a Responsible Federal Budget, argued the the plan will likely increase inflation and undermine the goals of Democrats’ Inflation Reduction Act.
Last week, Biden similarly announced he would cancel an additional $3.9 billion in student loan debt for over 200,000 students who attended ITT Technical Institute, The Shade Room reported.