When President Joe Biden officially entered the White House, one of his most anticipated initiatives surrounded student loan forgiveness. On the campaign trail, he made promising statements about college debt and pledged to forgive some amount of federal student loan debt for borrowers. As of August 2022, Biden has cancelled around $32 billion in debt for select groups, and now, he's announced that he's canceling up to $10,000 in student loan debt for those who make less than $125,000 a year, and up to $20,000 for those who were Pell Grant recipients and make less than $125,000 a year.
Due to the financial strain of the pandemic, payments have been in forbearance since March 2020, meaning borrowers have been able to temporarily stop payments or make smaller payments for over two years. While the freeze was set to expire on August 31, the Biden administration also announced on Wednesday that the payment pause has been extended through December 31. This will be the final extension.
As the administration's forgiveness plan rolls out, and payments are set to restart in about four months, here's everything you need to know about Biden's federal student loan policy, what he has enacted so far, and how his forgiveness policy affects you.
It's estimated by the Federal Reserve that national student loan debt reached over $1.7 trillion in the second quarter of 2021. That means around 43 million student borrowers are in debt, per statistics from the Education Data Initiative.
On Wednesday, August 24, President Biden announced that he'd be cancelling up to $10,000 in federal student loan debt for borrowers who make less than $125,000 a year. For those who received a Pell Grant - a form of federal financial aid - and make less than $125,000 a year, up to $20,000 in student loan debt will be forgiven.
This forgiveness plan only applies to federal student loans. Private loans are not eligible.
Biden's plan also caps monthly payments for undergraduate loans at 5 percent of a borrower's income, down from 10 percent.
According to a White House statement, the Department of Education will set up an application process for qualified borrowers to apply for relief.
"The application will be available no later than when the pause on federal student loan repayments terminates at the end of the year," the statement read. "Nearly 8 million borrowers may be eligible to receive relief automatically because their relevant income data is already available to the Department."
It's also a good idea to double-check all of your personal and contact information on your loan servicer's website, and keep an eye out for any communication or guidance from them.
President Biden has forgiven about $32 billion in federal student loans among the following groups: borrowers who were defrauded by their schools, borrowers with a total and permanent disability, and borrowers who work in the public sector.
The borrowers who attended now-nonexistent schools were the first to benefit from the loan forgiveness initiative. This aimed to aid those who attended a school that engaged in either illegal activity or "other misconduct in violation of certain state laws."
The second group consisted of borrowers who were registered as having a "total and permanent" disability by the Social Security Administration.
The third and final group to receive loan relief was government and nonprofit employees. This was granted through the Public Service Loan Forgiveness (PSLF) program, which required borrowers to be employed full-time by the government or a not-for-profit organization, be enrolled in a repayment plan, and to have previously made 120 on-time payments. An overhaul to this program immediately wiped out 22,000 borrowers' loans, according to the Education Department.
The extraordinary financial strain brought on by COVID-19 prompted then-President Trump to pause monthly student loan payments through September 30, 2020. It was subsequently extended a number of times and was scheduled to expire on August 31. But now, the repayment relief will continue through December 31.
"Borrowers should plan to resume payments in January 2023. While the economy continues to improve, COVID cases remain at an elevated level, and the President has made clear that pandemic-related relief should be phased out responsibly so that people do not suffer unnecessary financial harm," the U.S. Department of Education said in a statement on August 24.
Although there is extra time, borrowers should check in with their loan servicer to ensure they are as prepared as possible to make payments in January 2023.
Although Biden is delivering on his campaign promise to forgive at least $10,000 in federal student loan debt, some Democratic lawmakers such as Senator Elizabeth Warren and Senate Majority Leader Chuck Schumer, have urged the administration to increase the forgiveness policy to $50,000. Others have called on the president to completely cancel student loan debt for all. In a tweet on April 5, Senator Bernie Sanders of Vermont simply wrote, "Cancel student debt. All of it."
Cancel student debt. All of it.
New York Representative Alexandria Ocasio-Cortez echoed a similar sentiment and expressed on social media that repeatedly extending the pause is not the solution: "I think some folks read these extensions as savvy politics, but I don't think those folks understand the panic and disorder it causes people to get so close to these deadlines just to extend the uncertainty. It doesn't have the affect people think it does. We should cancel them," she wrote.
I think some folks read these extensions as savvy politics, but I don't think those folks understand the panic and disorder it causes people to get so close to these deadlines just to extend the uncertainty. It doesn't have the affect people think it does.
We should cancel them. https://t.co/ZvkGRwliLT
In a letter to President Biden on December 8, 2021, Schumer, Warren, and Representative Ayanna Pressley expressed their concerns: "Prior to the COVID-19 payments pause, student loan borrowers paid an average of $393 per month toward their student loans - money that could not be spent on their families' other needs."
"The pause on federal student loan payments, interest, and collections has improved borrowers' economic security, allowing them to invest in their families, save for emergencies, and pay down other debt. Restarting payments without cancelling student debt will undermine these families' economic progress," the letter continued.
© Drew Angerer - Getty ImagesCongressional Democrats Hold Press Conference On Canceling Student Debt
On the other side of the aisle, Republican lawmakers resist any move towards total student loan forgiveness.
After Biden's announcement on August 21, Senator Mitt Romney tweeted, "Biden's student loan forgiveness plan may win Democrats some votes, but it fuels inflation, foots taxpayers with other people's financial obligations, is unfair to those who paid their own way & creates irresponsible expectations."
In September 2021, Representatives Ted Budd, Warren Davidson, Scott Perry, and Barry Loudermilk wrote to Secretary of Education Miguel Cardona: "The law is clear: the Department does not have the legal authority to cancel student loan debt en masse. Mass cancellation of student loan debt would not only be a clear violation of the separation of powers but would also be an affront to the millions of borrowers who responsibly repaid their loan balances."