Biden cancels up to $20,000 in student loan debt for millions of borrowers 

President Biden this week announced an executive order canceling up to $10,000 in federal student loan debt for those earning less than $125,000 a year—or less than $250,000 a year for couples who file jointly. For borrowers who received Pell Grants, who typically come from families making less than $60,000 per year and account for over 60% of borrowers, the plan cancels up to $20,000 in debt.

The loan forgiveness comes at a time when 45 million people in the U.S. collectively owe $1.6 trillion on federal student loans, up from $516 billion in 2007. The move is expected to offer relief to as many as 43 million people—and eliminate entirely the remaining balance of 45% of those borrowers, an estimated 20 million people.

Borrowers who meet the necessary criteria will have their debt canceled regardless of whether they completed their degree. Currently enrolled students would be eligible for relief for debt that originated before July 1, 2022. Graduate school loans and Parent PLUS loans also qualify, Inside Higher Ed reports. Private loans, however, are not affected.

Biden’s team estimates that, excluding currently enrolled students, 90% of the relief will benefit borrowers who earn less than $75,000 annually. To have their debt canceled, eligible borrowers will need to fill an application form, unless they are eligible for automatic relief through their income-driven repayment plans.

This week’s announcement adds to the $32 million in student debt the Biden administration previously canceled for 1.6 million borrowers who work in public service, attended certain predatory for-profit colleges, or have permanent disabilities.

Repayment pause extended through December

Alongside the debt cancellation, the administration announced a final extension of the pandemic-era pause on student loan repayments through December 2022. 

It also said it would propose a new income-driven repayment plan that reduces the percentage of discretionary income borrowers must pay from up to 10-15% to a maximum of 5%. The 5% cap would apply to payments on undergraduate debt; borrowers would pay 10% for graduate debt. In addition, borrowers with balances under $12,000 would have their loans forgiven after 10 years of monthly payments, rather than the 20 years currently required. Biden’s plan further proposes that borrowers’ loan balances would not increase while they are making monthly payments. 

The need for debt relief

In his remarks on Wednesday, the president said debt cancellation was an economic necessity. “We’re going to be out-competed by the rest of the world if we don’t take action,” he said during a press conference. “The total cost to attend a public four-year university has tripled, tripled in 40 years…[and] many states have cut back support for their state universities, leaving students to pick up more of the tab.”

Related: Inflation spurs tuition hikes, as student loan interest rates set to increase >

“The burden of student loan debt is especially heavy for Black and Hispanic borrowers who on average have less family wealth to rely on to pay for college,” Biden said on Twitter. While the average borrower has over $30,000 in student loan debt, the number is much higher for women, especially women of color, The 19th News reports. Black women tend to owe the most, on average ($41,466), but Native American women ($36,184), Pacific Islander women ($38,747), and white women ($33,851) are not far behind, data from American Association of University Women show. 

Related: Report examines student debt by state, racial disparities in default rates >

Lujain Al-Khawi, 25, tells The Chronicle of Higher Education that she is “very excited about the news today.” Although she received a merit scholarship to study engineering at George Washington University and worked 20 to 30 hours a week throughout college, she still had to borrow $50,000 in public and private loans to cover expenses. “Even though I have worked while studying, I couldn’t pay it off because of living expenses.” She currently has $6,000 left in public loans to pay off and has taken out more to pay for a master’s degree at Johns Hopkins University while working full-time as an algorithm engineer at a medical-device company. 

“This is life changing,” says Marlene Ramirez, 25, a Pell Grant recipient and first-generation college student who borrowed $25,000 in federal loans to cover her housing and living expenses. The loan cancellation “will almost wipe that out,” Ramirex, now a graduate student at the London School of Economics, tells The New York Times.

Additional reforms to the student loan system

Prior to this week’s student debt cancellation announcement, the White House had been taking steps to reform the student loan system, including implementing a Fresh Start initiative that would delete the defaults of 7.5 million student loan borrowers who fell behind on their loan payments, according to Higher Ed Dive.

The Education department has also called on colleges and universities to use federal coronavirus aid to help cover students’ unpaid tuition and fee balances.

The scope of the president’s executive powers over student debt cancellation have remained under debate, with Republicans challenging Biden’s authority to cancel student debt through executive action. On Wednesday, a memorandum from the Education Department detailed the president’s authority over the issue. While it is possible that opponents may file challenges in court, at that point, millions of borrowers likely would have already been granted relief, according to The Chronicle.

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