What is the latest news on the cancellation of student loan debt? You may recall that during his run for president, Joe Biden made a campaign promise to erase up to $10,000 in student loans for each borrower. As a result, borrowers are understandably curious about the most recent developments regarding President Biden’s proposal to forgive student loans. The following is a summary of recent events, followed by some speculation of what might occur next.
Table of contents
- Update: Biden Keeps His Promise!
- Recent News on the Cancellation of Student Loan Debt
- President Biden’s Stance
- Arguments in favor of student debt cancellation
- Arguments against student debt cancellation
- Future Prospects canceling student loans could have on borrowers
- What would this mean for the American Taxpayer?
Update: Biden Keeps His Promise!
United States President Joe Biden made good on his campaign promise in the announcement on Wednesday August 24, 2022 that he will cancel $10,000 in federal student debt for the majority of students, giving financial relief to millions of Americans.
Biden will knock out up to $20,000 to Pell Grant applicants.
“Both of these focused steps are for families with the greatest need,” the president stated Wednesday afternoon from the White House.
The promised relief will be limited to Americans who earn less than $125,000 annually, or $250,000 for married couples or single heads of household. According to the Education Department, the relief is also capped at the amount of a borrower’s outstanding qualifying debt.
According to the tweet, the president will also “finally” extend the payment moratorium on most federal student loans through December 31, 2022.
Biden stated in his remarks that the plan will assist 95% of borrowers, or around 43 million individuals. More than sixty percent are Pell Grant recipients.
Biden stated that approximately 45 percent of all borrowers, or nearly 20 million people, would have their debt completely wiped.
Biden stated, “That’s 20 million people who can move on with their lives.”
All of this indicates that people can now begin to get out from beneath their mountain of debt. To be current on their rent and utilities. To finally consider purchasing a home, establishing a family, or launching a business.”
Mark Kantrowitz, an expert in higher education, estimates that Biden’s choice to cancel $10,000 of debt for student borrowers earning less than $125,000 will cost the federal government approximately $244 billion. The cost of the $20,000 in assistance for Pell Grant recipients may increase by around $120 billion.
The extraordinary elimination of hundreds of billions of dollars in consumer debt by the White House is the result of years of discussions and pressure and months of heated debate among Biden administration officials.
These conversations centered on the potential impact of student loan forgiveness on the rising inflation striking in the back pockets of Americans, the amount of student debt that should be forgiven, and whether the president had the authority to lower people’s amounts without legislative approval.
The impending midterm elections in November increased the pressure on the administration to make a decision. Advocates claim that eliminating student debt will motivate younger voters, among whom Biden’s popularity is declining, to go to the polls.
Although the president had been pressured to eliminate debts of at least $50,000 per person, including by Senate Majority Leader Chuck Schumer (D-NY) and organizations such as the NAACP, he had consistently indicated reluctance to do so.
Recent News on the Cancellation of Student Loan Debt
In a video that was uploaded on Twitter on April 6, 2022, President Biden made the announcement that the suspension of repayments on federal student loans will be extended once more, this time until August 31, 2022. The President concluded the video by advising borrowers that if they require assistance in getting ready for repayment, they should go to the studentaid.gov website.
Borrowers of federal student loans, who have not been compelled to make payments since March 2020 due to this development, are subjected to an extended period of uncertainty. No further announcements are expected regarding the payment suspension or large-scale student loan forgiveness until much later in the Summer of 2022.
To this point, the focus of the Administration has been on canceling student loans that were taken out to attend for-profit colleges that were determined to have been scamming student borrowers. One example of such a college is Corinthian Colleges. The Education Department made an announcement regarding the cancellation of loans related with the schools on June 1, 2022, which will result in a savings of $5.8 billion.
On the 22nd of December in 2021, Joe Biden made public his announcement of a third extension of the payment halt and interest waiver for federal student loans. The interest-free status of federal student loans would be maintained until May 1, 2022. There was no mention of a loan forgiveness or cancellation scheme that the Biden administration might be pursuing in that announcement; instead, President Biden advised borrowers to “do their part” to prepare for repayment of their loans.
After the administration stated that its announcement in August would be the final extension of the student loan interest waiver that was implemented as part of the CARES Act, this extension came as a bit of a surprise. The CARES Act was passed with the focus on helping low-income students pay for college. The day before, reporters asked White House Press Secretary Jen Psaki about the possibility that President Biden will extend the payment moratorium again or legislate greater student debt forgiveness. In response, Ms. Psaki stated that the President had not made a decision about either option at this time.
Borrowers are also keeping a watchful eye out for any news regarding large student loan forgiveness, such as what President Biden pledged during the campaign. It is still unknown whether the payment moratorium will be extended beyond August 2022.
The Biden administration has taken a piecemeal approach to student debt relief while it investigates the legal governmental authority to pursue wider loan forgiveness programs without the support of Congress as it continues to pursue its agenda despite having only narrow majorities in Congress. This is because the administration is pursuing its agenda despite having only narrow majorities in both houses of Congress.
According to a factsheet provided by the Education Department, another recent development was the announcement of plans to revamp the PSLF (Public Service Loan Forgiveness) program in order to “restore the promise of PSLF.” A one-time waiver will allow payments from all federal student loan programs, even those that were not eligible in the past, to be included toward progress toward public service loan forgiveness. This is one of the most important aspects of the development that has taken place.
On August 19, the Department of Education made the announcement that more than 300,000 borrowers who have a total or permanent handicap will be eligible to have their student loans forgiven, totaling $5.8 billion. By comparing data from the Social Security Administration, the Department of Education would start the process of determining which borrowers are qualified for the automatic discharge of their student loans.
The United States Department of Education and the Department of Justice are now investigating whether or not the President of the United States has the legal right to forgive up to $50,000 worth of federal student loan debt through the use of executive action. There is currently no schedule in place for the dissemination of these reports. Because Congress has not yet announced key policy advisor appointments in both departments, there is a possibility that there will be delays.
Regardless of whether the move will be accomplished through executive action or legislation, the Student Loan Forgiveness Targeting Study will be conducted by the Domestic Policy Council of the White House.
Student loan borrowers need to be on the lookout for scams that promise the cancellation of their debt in exchange for a fee. When the plan to erase student loans is finally implemented, it will most likely be set up so that it is automatic and cost nothing extra. On the website StudentAid.gov, the United States Department of Education will post an update in the near future.
President Biden’s Stance
Congressmen have requested that President Biden forgive each student loan borrower’s $50,000 debt. However, the president has stated on multiple occasions that if he were to utilize his ability to erase large portions of people’s student loans, he would not forgive more than $10,000 to any one borrower. Find out more about the President here.
On April 28, he addressed a press conference and said: “I am thinking about dealing with part of my debt, but I am not thinking about reducing my debt by $50,000 right now. However, I am currently conducting an in-depth investigation on the question of whether or not there will be additional debt forgiveness, and I will have a response to that question within the next couple of weeks.”
It was confirmed during a press conference held on May 3 by former White House spokesperson Jen Psaki that any debt cancellation would likely target borrowers making less than $125,000 annually. Psaki made this statement in response to a question regarding whether or not Biden was considering providing relief for these borrowers.
There was not a single element in Biden’s budget proposal for 2022 that addressed student loan forgiveness on a broad scale. During his campaign for the presidency, he had made proposals of forgiveness in the following situations:
If you attended a university that was publicly funded. Those who attend private historically black colleges and universities, in addition to students attending other minority-serving schools, would be eligible.
If the loans were used to pay for your undergraduate education.
If your annual income is lower than $125,000. The plan proposed by Biden made a passing mention of the elimination of this benefit but did not provide any additional information.
Because there is no formal request for loan forgiveness, there are no specifics regarding which loans might be forgiven at this time.
Arguments in favor of student debt cancellation
The burden of student debt has forced many debtors to put their lives on hold. Student loan debt, according to proponents of debt cancellation, prevents students from making key financial decisions such as beginning businesses, purchasing homes, getting married, and having children.
Not all borrowers have higher education, which can increase their incomes. According to Brookings, persons with debt and no degree have a probability of defaulting on their student loans that is four times higher than those with a degree.
According to the data provided by the National Center for Education Statistics, around 41.8 percent of students who started college in 2011-12 took out student loans. However, after another six years, just 59 percent of the population had earned their bachelor’s degree. Those who take out student loans but do not graduate from college miss out on the increased lifetime earnings that are typically associated with having a degree.
Cancellation of student loans might help bridge the economic gap between different races. The lack of wealth that is passed down from generation to generation is cited as the primary reason for many Black and Hispanic families’ increased reliance on student loans as a means of financing higher education. After graduation, inequalities persist: Black and Hispanic graduates often earn less than other graduates, and as a result, they are more likely to default on their student debts.
Arguments against student debt cancellation
Cancellation of student loans would violate basic principles of fairness. Student loan debt cancellation, according to its detractors, would not be beneficial to people who did not attend college in the past or who have already paid off their student loans. Critics contend that those 13 percent of the population that attend college would be the only ones to benefit from the cancellation, and that the cancellation is unnecessary due to the fact that individuals with college educations often earn more.
Cancellation of large amounts of student debt would have a negative social impact. Cancellation of student loans, according to the findings of a research conducted by the Brookings Institution in January 2022, would provide a disproportionately large benefit to rich borrowers. Those with the largest levels of student loan debt often have attended graduate school. There is often a correlation between having a greater level of education and higher incomes.
Cancellation on a one-time basis will not alleviate the problem of student debt in the future. According to projections made in July 2021 by the Committee for a Responsible Federal Budget, a public policy organization on the right side of the political spectrum, if all student debt were removed, the entire debt would recover to the level it is at today by the year 2035. If each borrower’s loan of $10,000 were forgiven, the total amount of debt in the economy would return to its previous level in 2025.
Future Prospects canceling student loans could have on borrowers
It is possible that 45.7 million borrowers who have federal student loan debt and who owe a combined total of $1.61 trillion to the government could be eligible for broad student loan forgiveness. The elimination of each person’s $10,000 — which Biden advocated for while he was running for office — would result in the cancellation of as much as $457 billion.
Consider how this might influence borrowers in light of the overall amount of money they owe:
A new beginning was made available to 15.2 million borrowers. A debt cancellation of $10,000 would wipe out the balances of nearly one-third of federal debtors, bringing the total amount they owe to the government to $0. According to data from the federal government, of those individuals, 7.8 million have student loan debt of less than $5,000 and 7.4 million have debt ranging from $5,000 to $10,000.
According to an examination of federal statistics conducted in June 2019 by The Institute for College Access and Success, more than half of the borrowers who default had less than $10,000 in federal undergraduate debt. This statistic was derived from the study.
This is due to the fact that individuals who have smaller amounts of debt frequently have not completed their education, meaning they do not enjoy the benefits of a degree, which leads to higher paid jobs. According to the findings of TICAS, nearly half of those who defaulted on their payments did not finish their course of study.
Some wiggle room for 18.9 million people who have taken out loans. According to data from the US government, about 19 million borrowers have federal student loans with balances ranging from $10,000 to $40,000. These borrowers face a variety of potential outcomes as a result of general student loan forgiveness because there is no clear execution strategy in place. Cancellation, for instance, might not cut the amount that they pay each month, but it might bring their end date forward and reduce the total amount that they would pay owing to the loan interest over the course of the entire contract. Or, it could fully wipe off one loan while maintaining the obligations to pay back other loans.
A drop in the bucket for 11.6 million people who have borrowed money. Households that carry a significant amount of student debt are more likely to have members with advanced degrees and typically have higher salaries. There are about 8 million people who owe the government an amount of student loan debt ranging from $40,000 to $100,000. According to the data, there are an additional 3.3 million borrowers who owe more than $100,000 on their federal loans. If $10,000 of their debt was waived, a borrower who was making payments on a $100,000 loan under the typical government 10-year plan at 5% interest would be able to pay off their loans 15 months earlier.
What would this mean for the American Taxpayer?
If broad student loan forgiveness was implemented, it would be among the largest financial impacts in the annals of United States history, both in terms of its budget size and the amount it would cost taxpayers. According to information provided by the DOE (Department of Education), the cost of canceling all federal loans would be on the order of $1.6 trillion if Senator Bernie Sanders’ proposal were to be implemented.
It would cost around one trillion dollars to forgive student loans of up to fifty thousand dollars per borrower, as Senators Elizabeth Warren and Chuck Schumer have proposed. The cost of implementing President Biden’s proposal to cap the amount of forgiven debt at $10,000 would be around $373 billion. Every single one of these 43 million debtors would stand to benefit, albeit to varying degrees, from each of these solutions.
Thanks for reading our blog post about the latest news on the cancellation of student loan debt. Hopefully, we get some news soon, whether good or bad.