(Bloomberg) — President Joe Biden announced a sweeping student debt relief package, forgiving up to $20,000 in loans for some recipients and extending a moratorium on repayments for four months until the end of the year.
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Biden will also announce changes Wednesday to the current loan system, allowing borrowers with undergraduate loans to limit repayments to 5 percent of their monthly income. He will detail his plans in a speech at 2:15 p.m. Washington time from the White House.
The $20,000 in 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 number — combined with an income ceiling of $125,000 for individuals and $250,000 for households — is in line with the level Biden has been weighing for several months.
But it falls short of the amount advocates have requested. Progressive lawmakers, civil rights groups and labor leaders have pushed the White House to forgive higher debt, arguing it disproportionately burdens black or low-income students.
The Biden administration will also propose a new rule that would allow borrowers to pay more than 5 percent of their monthly discretionary income on federal undergraduate loans — up from 10 percent today. The proposed rule also says that borrowers who make less than 225% of the federal minimum wage — about $30,577, or what a full-time worker earning $15 an hour earns — are not required to make payments on federal student loans them, at the Ministry of Education.
The rule calls for the government to forgive loan balances of $12,000 or less after the borrower has made 10 years of payments. Currently, borrowers must pay off their loans for two decades and have a balance below that amount to have their debts written off.
The proposal would also limit the accumulation of unpaid interest for as long as borrowers make payments, so that those taking advantage of limited loan payments would not see their overall balance grow.
Read more: Biden to unveil student loan plan Allies are too thin
Although they had pushed for a higher percentage of debt relief per borrower, progressive lawmakers hailed the $20,000 forgiveness for Pell grant recipients as a major victory. Broader amounts of loan cancellations for low-income people have been a major goal.
“With the stroke of a pen, President Biden took a giant step forward in addressing the student debt crisis by canceling significant amounts of student debt for millions of borrowers,” Sen. Elizabeth Warren and Senate Majority Leader Chuck said in a joint statement. Sumer.
Other advocates, while celebrating the news, noted that it will not affect all borrowers.
“While this announcement is an important victory for many, it is important to emphasize that $10,000 will leave many others crushed by debt, and the important details will determine who has access to much-needed help,” said Natalia Abrams, president and founder of the Student Debt Crisis Center.
The National Association of Student Financial Aid Administrators has asked the Department of Education to make the application as easy as possible.
“Student loan relief without proposals for systemic reform is incomplete,” said Justin Draeger, president of the trade group, adding that loan forgiveness will not help future borrowers.
The latest repayment freeze will be the last one Biden will support, a person familiar with the matter said, meaning payments that have been on hold for nearly two and a half years will resume in January. Another extension will allow time to process remaining loans and restart a system that has been on hold, the person said.
It is the seventh extension of the freeze since the Covid-19 pandemic began in March 2020 and will be paused after the midterm elections in November, in which Democrats hope to avoid losing their slim majorities in the House and Senate. . The latest moratorium on loan repayments is set to expire on August 31. Support from young voters could help bolster the Democratic showing.
Read more: Biden’s student loan dilemma hits home for overburdened top aides
Republicans have criticized the move, arguing it would fuel inflation and put taxpayers on the hook. Senate Majority Leader Mitch McConnell called the plan “stunningly unfair.”
“President Biden’s student loan socialism is a slap in the face to every family who sacrificed to save for college, every graduate who paid off their debt, and every American who chose a particular career path or volunteered to serve in our Armed Forces for to avoid taking on debt,” McConnell said in a statement.
Representative James Comer of Kentucky, the ranking Republican on the House Oversight Committee, said the plan was “unfair to hard-working Americans who don’t have a college degree or who made tough financial decisions to pay for their college educations.”
A senior government official countered criticism that the debt relief plan could worsen inflation, saying the fiscal impact of targeting relief when payments restart would be largely offset — and could even reduce inflation in the long run.
Biden’s moves will clear student debt for about 20 million Americans, according to the official.
To qualify for relief, many borrowers will have to fill out an application that 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 may qualify for immediate forgiveness, the official added.
In his speech outlining the student debt plan, Biden is also expected to discuss ways to make the student loan system more manageable for current and future borrowers by cutting monthly student loan payments in half.
The Biden administration says the package will help lower-income people, with 90 percent of the relief going to borrowers earning less than $75,000 a year.
The Penn Wharton Budget Model from the University of Pennsylvania estimated in an analysis released Tuesday that eradicating student loan debt would cost between $300 billion and $980 billion over 10 years, depending on the range.
(Adds reaction from outside groups, McConnell begins in paragraph 16)
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