Roughly 43 million federal student loan borrowers will be eligible for relief, including 20 million who are eligible to have their debts canceled completely, according to a senior White House official who briefed reporters on Mr Biden’s plans.
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The White House estimates that the vast majority of relief through the administration’s latest maneuver will go to people with annual incomes of less than $75,000, and that 45 per cent of student loan borrowers will have their debts completely eliminated under Mr Biden’s proposal.
“It is really hard to overstate how significant this is for America’s middle class and for our economy,” said the official, who spoke on condition of anonymity. “This announcement will help people who by and large came from working families and are working class now.”
Mr Biden will also announce a proposal to cut the amount of discretionary income used to calculate payments made as part of income-driven repayment plans from 10 per cent of discretionary monthly income to 5 per cent.
“For example, a typical single construction worker making $38,000 a year with a construction management credential would pay only $31 a month, compared to the $147 they pay now under the most recent income driven repayment plan that would give them an annual savings of nearly $1,400,” according to the official, who added that borrowers will be allowed to permit the Department of Education to automatically access their income tax information so they will not have to rectify their income each year.
“Once a borrower is enrolled, it will be much easier to stay enrolled and receive credit that they’re due,” the official said.
Mr Biden’s announcement fulfills a campaign-trail promise he made more than two years ago when he pledged that he would cancel $10,000 in student loan debt per borrower if elected, though debt relief advocates and progressive lawmakers have urged him to cancel all debts and reject means-testing barriers in broad relief measures.
In November 2020, the president called on Congress to “immediately” provide some relief for millions of borrowers saddled by growing debt.
“[Student debt is] holding people up,” he said at the time. “They’re in real trouble. They’re having to make choices between paying their student loan and paying the rent.”
More than 40 million Americans hold roughly $1.9 trillion in student loan debt, most of which is wrapped up in federal loans. The average balance is $37,667, according to the Education Data Initiative.
Since March 2020, with congressional passage of the CARES Act, most borrowers have not had to make monthly payments on their student loan debt, with interest rates set at zero per cent. That pause has been extended seven times, including four times by President Biden, most recently in April.