WASHINGTON — President Joe Biden is set to announce Wednesday that he will forgive $10,000 in student loan debt for millions of borrowers who fall below the income ceiling, according to a source familiar with the plan.
After months of weighing executive action, the president is expected to unveil his long-awaited decision after he returns to the White House from a vacation in Rehoboth Beach, Delaware. The action is also expected to include extending through January a moratorium on federal student loan payments — implemented during the coronavirus pandemic — that will expire at the end of this month.
The White House would not confirm the impending announcement, as first reported by The Associated Press.
The president said he would make a decision by August 31. Biden is facing growing pressure from progressive Democrats to cancel an even larger share of the debt owed by Americans who took out federal loans to pay for college. But some Democratic economists, including former Treasury Secretary Larry Summers, worry about the risk of a debt write-off worsening inflation at a 40-year high.
More: Biden takes ‘hard look’ at student loan debt forgiveness, but less than $50,000
What is the president thinking?
The parameters are still unclear. But the White House has zeroed in on a plan that would have canceled $10,000 of student loan debt per eligible borrower, according to sources, which matches a number Biden had. The White House has also discussed extending the relief beyond $10,000 for borrowers who meet certain criteria, according to a source.
Debt forgiveness will be limited to borrowers with household incomes of $125,000 or less and will only apply to people with federal loans, not private.
More than 43 million people have federal student loan debt in the U.S., and the average borrower has about $37,000, according to data compiled by the Education Data Initiative. The balance of the federal loan is about $1.6 trillion.
More: Biden aides ‘talking daily’ about student loans, we expect a decision soon: Education Secretary Cardona
Progressive Democrats have pushed for more
Canceling $10,000 in student loan debt could get mixed reviews from progressive groups — including the NAACP, the Congressional Black Caucus and unions — that have called for more debt cancellation. Some liberals have urged Biden to cancel all student loan debt. Top Democrats, including Majority Leader Chuck Schumer, DN.Y., and Sen. Elizabeth Warren, D-Mass., have pressed Biden to cancel at least $50,000 in student loan debt.
“If the rumors are true, we have a problem. And tragically, we’ve experienced this so many times in the past,” said Derrick Johnson, president and CEO of the NAACP, which has pushed for at least $50,000 in student debt forgiveness. .
The income cap on eligibility — designed to keep wealthy Americans from taking advantage — is another area of contention for progressive activists, who say it would create bureaucratic chaos and prevent millions of borrowers from getting relief.
“The hoops of the means test mean that millions and millions of borrowers won’t get help,” said Melissa Bryne, executive director of We The 45 Million, which represents student loan borrowers who support student debt relief. He called it an “outrageous violation” of Biden’s campaign pledge to cancel student loan debt for all borrowers.
The risk of inflation hangs on the decision
Biden said in April that he was taking a “hard look” at executive actions to forgive federal student loans. Foremost on the White House’s mind in the months that followed: the potential impact on inflation, which has soared throughout the year.
Canceling potentially up to $10,000 in student loan debt would mean billions more collectively left in Americans’ pockets. Some critics argue that the extra money for consumers to spend risks fueling demand and further accelerating historic inflation.
More: How rising inflation complicates Biden’s decision on whether to forgive student loan debt
Summers, a former Treasury secretary in the Clinton administration and an economic adviser to Barack Obama, led the warnings about the impact on inflation and said canceling student debt would disproportionately help higher-income Americans. Jason Furman, chairman of Obama’s Economic Councilnomic Advisers, has expressed similar concerns.
“Student loan debt relief is spending that increases demand and increases inflation,” Summers said in a tweet on Monday. “It consumes resources that could be better used helping those who, for whatever reason, did not have the opportunity to attend college. It will also tend to be inflationary by raising tuition.”
The impact on borrowers
A study by Liberty Street Economics found that forgiving $10,000 per borrower would wipe out $321 billion in student loan debt and erase debt entirely for about a third of borrowers, or about 12 million people.
A separate study this week by The Wharton School of the University of Pennsylvania found that $10,000 in federal college student loan forgiveness would cost the federal government between $300 billion and $980 billion over 10 years.
The Biden administration has already written off about $32 billion in student debt for 1.6 million borrowers by expanding eligibility requirements for pre-existing relief programs such as the Public Service Loan Forgiveness program.
More: Young people want student debt relief. But not everyone wants it scrapped entirely, according to a poll
A boost for Democrats in the midterms?
Canceling some student loan debt – an idea hugely popular with young, left-leaning voters – could energize a key voting bloc that has shown signs of being unenthusiastic about November’s midterm elections.
A USA TODAY/Public Agenda poll in July found that nearly 60% of Americans support “forgiving a significant portion of government student loans for college graduates who have too much debt.” That percentage of support dropped when Americans were asked about debt relief for all graduates, regardless of income.
Opinion: Student loan “forgiveness” is not motivated by kindness. It’s all a matter of cold, hard politics.
Previewing their line of attack, Republicans have denounced student debt forgiveness as a ploy to reward the liberal elite and punish those who couldn’t afford college or had to save to pay off their debt. They also said it would drive up inflation.
“Joe Biden had a lot of bad ideas” Sen. Tom Cotton, R-Ark., said Tuesday. “But shifting billions in student loan debt to taxpayers – especially in a time of high inflation – may be his worst idea.”
More: ‘Unbelievable fall for the rich’: Republicans heat up attacks as Biden weighs student debt forgiveness
Reach Joey Garrison on Twitter @joeygarrison.
This article originally appeared on USA TODAY: Biden to announce $10,000 student loan cancellation