With the election just 77 days away, President Biden took executive action Wednesday to cancel up to $10,000 in student loan debt for borrowers and up to $20,000 for recipients of Pell grants.
Biden’s plan will provide $10,000 for borrowers making less than $125,000 annually and couples earning less than $250,000 per year, according to the White House.
Biden also announced an extension of the pandemic pause on student loan payments through the end of the year. Borrowers were supposed to resume payments beginning August 31.
The unprecedented move provides relief to the vast majority of 40 million who borrowed to go to college, a fact that many borrowers and Democrats support and will undoubtedly celebrate.
As many as 15 million borrowers who have $10,000 or less in student loans will become entirely debt free under the plan, according to the Institute for College Access & Success, a nonprofit advocacy group for forgiveness.
Biden has repeatedly delayed making a decision, sidestepping pressure from numerous Democrats including Sen. Elizabeth Warren, who has been a vocal proponent of student loan forgiveness for a number of years.
Warren said yesterday on Twitter that forgiveness will “keep rebuilding the middle class” and “narrow the racial wealth gap, provide relief to the 40% of borrowers who never got to finish their degree and give working families the chance to buy their first home or save for retirement. It’s the right thing.”
Sen. Bernie Sanders of Vermont tweeted that “if we could afford to cancel hundreds of billions in PPP loans to business owners in their time of need, please do not tell me we can’t afford to cancel all student debt for 45 million Americans.”
Still, the move is controversial and got pushback from academics and a number of Republicans who called Biden’s executive action “a mid-term election gimmick,” as Rep. Andy Biggs (R., Ariz.) termed it.
New analyses by the University of Pennsylvania’s Penn-Wharton Budget Model and the Committee for a Responsible Federal Budget found that student loan forgiveness would benefit top earners and highly educated grads most and worsen inflation.
The Penn-Wharton Budget Model estimated that forgiving federal college student loan debt will cost between $300 billion and $980 billion over the next 10 years.
Most of the debt is held by borrowers in the top 60% of income distributions. Some 87% of American adults don’t have student loans, Penn-Wharton reported
The Committee for a Responsible Federal Budget, a nonprofit think tank, said in a recent analysis that “debt cancellation gives a much higher proportion of its benefit to top earners. For example, a report from the University of Chicago showed that the top 10% of earners receive more from cancellation than the entire bottom 30% of earners.”
The committee, which used data from the Congressional Budget Office and Department of Education, also found that those with larger balances would see the $10,000 in student loan debt cancelled today grow back to $10,000 in just four years after interest charges.
Republican Senator Tom Cotton from Arkansas said in a tweet: “Americans who paid off student loans or never borrowed for school just took on $300 billion in new debt, thanks to Biden’s shameless bribe.” In another tweet he said, “transferring billions in student loan debt to taxpayers—especially at a time of high inflation—might be his worst idea yet.”