Biden unveils offer to free students from ‘unsustainable debt’ (1)

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President Joe Biden announced a sweeping student debt relief program that forgives up to $20,000 in loans for some recipients, a move it said would help a generation “struggling with unsustainable debt.”

“The burden is so heavy that even if you graduate, you may not have access to the middle-class life that a college degree once provided,” Biden said Wednesday at the White House.

“I made a commitment to reduce student debt. And I honor that commitment today,” he added.

Biden also announced a four-month extension to the moratorium on student loan repayments, as well as plans to allow borrowers with undergraduate loans to cap repayments at 5% of their monthly income.

President Joe Biden has announced a sweeping student debt relief program that forgives up to $20,000 in loans to some recipients, a move he said would help a generation “struggling with unsustainable debt.” Anyone earning more than $125,000 will not be eligible. Biden speaks at the White House.

Source: Bloomberg

Taken together, the measures aim to deliver on a Biden campaign promise and curry favor with younger, progressive voters, whose support could help Democrats hope to avoid losing their narrow House and Senate majorities. .

The announcement caps off a strong month for Biden which has seen the shift from a massive Democratic climate, health care and tax package, signs that inflation may start to moderate and the jobless rate falls to pre-pandemic lows. Democrats say they believe the student loan aid along with the Supreme Court ruling striking down abortion rights nationwide will push voters to the polls.

But some economists, including former Democratic officials, have warned that canceling student debt and suspending repayments for some 20 million Americans could exacerbate already runaway inflation – Biden’s main policy wind as the Federal Reserve is trying to avoid a recession.

The cost of such a pardon would be in the hundreds of billions of dollars, according to an administration official’s estimate.

Biden had been under pressure from progressive lawmakers, civil rights groups and labor leaders to write off higher debts, arguing they are disproportionately borne by black or low-income students. Although the final plan fell short of those expectations, most supporters welcomed the steps taken by the president.

The $20,000 debt forgiveness will apply to loans for those who also receive Pell Grants. For most student loan holders, the limit will be $10,000. That figure — paired with an income cap of $125,000 for individuals and $250,000 for households — matches a level Biden has been weighing for several months.

The Biden administration will also propose a new rule prohibiting borrowers from paying more than 5% of their monthly Discretionary Income on federal undergraduate loans, up from 10% today. The proposed rule says borrowers who earn less than 225% of the federal minimum wage — about $30,577, or what a full-time worker earning $15 an hour earns — aren’t required to make payments on their federal undergraduate loans, according to the Department of Education.

The rule asks the government to forgive loan balances of $12,000 or less after a borrower has made 10 years of payments. Currently, borrowers must repay their loans for two decades and have a balance below that amount to get debt forgiveness.

The proposal would also prevent unpaid monthly interest from accumulating as long as borrowers make payments, so those on capped loan payments won’t see their overall balance increase. The student loan forgiveness will be considered tax-free income until 2025 under the US bailout, which Biden signed in March 2021.

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Despite pushing for a higher debt relief figure per borrower, progressive lawmakers hailed the $20,000 rebate for Pell grant recipients as a major victory. Increasing loan forgiveness amounts for low-income people had been a major goal.

“In a jiffy, President Biden has taken a giant leap forward in solving the student debt crisis by canceling significant amounts of student debt for millions of borrowers,” the senator said. Elizabeth Warren and Senate Majority Leader chuck schumer said in a joint statement.

The NAACP, which had criticized the $10,000 figure, said the final plan brings them closer to their “ultimate goal of easing the burden of student debt.”

“We still have a ways to go, but the NAACP is proud to have been able to push President Biden past $10,000, bringing us closer to $50,000 and beyond,” said Derrick Johnson, chairman of the group, in a press release.

Other advocates, while celebrating the news, noted that it won’t affect all borrowers.

“While this announcement is a major victory for many, it is important to note that $10,000 will still leave many more crushed in debt, and important details will determine who has access to much-needed help.” said Natalia Abrams, president and founder of the Student Debt Crisis Center.

The latest repayment break would be the last supported by Biden, a person familiar with the matter said, meaning payments suspended for nearly two and a half years will resume in January. Another extension will allow time to process loan balances and restart a system that has been interrupted, the person said.

This is the seventh extension of the freeze since the start of the Covid-19 pandemic in March 2020, and has the political advantage of preventing loan repayments from starting within two months before the mid-terms. The last break in loan repayments was due to expire on August 31.

“It’s time for payments to resume,” Biden said Wednesday.

Read more: Biden’s student loan dilemma hits home for top debt helpers

Republicans criticized the move, arguing it would fuel inflation and blame taxpayers.

“President Biden’s student loan socialism is a slap in the face to every family who has sacrificed to save for college, every graduate who has paid off their debt, and every American who has chosen a certain career path or gone volunteer to serve in our Armed Forces to avoid getting into debt,” the GOP leader told the Senate Mitch McConnell said in a statement.

Representing james comer of Kentucky, the top Republican on the House Oversight Committee, called the plan “unfair to hard-working Americans who don’t have a college degree or have made financial decisions.” difficult to pay for their university studies”.

Biden brushed off criticism in his remarks.

“I understand that not everything I’m announcing today will make everyone happy. Some think it’s too much,” he said. “Some think it’s too little. But I believe that my plan is responsible and fair, it focuses benefits on the middle class and working families, and helps current and future borrowers, and it will fix a badly damaged system.

A senior administration official pushed back on criticism that the debt cancellation plan could worsen inflation, saying the fiscal effects of targeting relief when payments restart will be more than offset — and could even be reduce long-term inflation.

To qualify for relief, many borrowers will need to complete an application which will be available in the coming weeks to verify their income levels. About 8 million people have already submitted income information to the Education Department and could be eligible for an immediate pardon, the official added.

The Biden administration says the program will help low-income people, with 90% of the relief going to borrowers who earn less than $75,000 a year.

(Updates with additional remarks throughout)

–With the help of Alex Tanzi, Janet Lorin, Fabian Jordan, Akayla Gardner and Justin Sink.

To contact the reporters on this story:
Nancy Cook in Washington at [email protected];
Josh Wingrove in Washington at [email protected];
Jennifer Jacob in Washington at [email protected]

To contact the editors responsible for this story:
Alex Wayne to [email protected]

Kathleen Hunter, Meghashyam Mali

© 2022 Bloomberg LP All rights reserved. Used with permission.

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