“An entire generation is now saddled with unsustainable debt,” Biden said, putting home ownership, starting a business, and even starting a family out of reach. “About a third of the borrowers,” he said, “have debt but no degree,” calling it “the worst of both worlds.”
A majority of people receiving debt relief qualified for Pell Grants and will have $20,000 forgiven, Biden said. Biden’s moves could completely wipe clean student debt for 20 million out of the 43 million eligible people, according to administration figures cited by Biden and reported by The Washington Post, with 90% of relief going to people earning less than $75,000. Thanks to the foresight of Senate Democrats in crafting the American Rescue Plan in 2021, student debt forgiveness will not count as taxable income.
Biden pointed to deficit reductions already achieved and planned in the Inflation Reduction Act as a way this program is paid for, rebutting some of the outrage from the right. “I will never apologize for helping working Americans and the middle class, especially not to the same folks who voted for a $2 trillion tax cut that mainly benefited the wealthiest Americans and the biggest corporations,” Biden said. He went on to point out that “no one complained” about loans to small businesses during the pandemic, saying those loans “were the right thing to do,” but contrasting it against the outrage over student loan forgiveness.
The new moves also, Biden said, help fix the student loan program going forward, with changes to income-based repayment plans. Payments for those will be capped at 5% of income rather than 10% while raising the amount of income considered non-discretionary, “guaranteeing that no borrower earning under 225% of the federal poverty level—about the annual equivalent of a $15 minimum wage for a single borrower—will have to make a monthly payment,” according to a federal student loan fact sheet. In a key move, the changes to the income-based repayment will also “cover the borrower’s unpaid monthly interest, so that unlike other existing income-driven repayment plans, no borrower's loan balance will grow as long as they make their monthly payments—even when that monthly payment is $0 because their income is low.”
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Authors Marco Di Maggio, Ankit Kalda, and Vincent Yao found that canceling student debt had a range of positive effects in the lives of borrowers, whose total debt balance excluding the student loans declined substantially in the wake of getting relief on their student loans. They were also less likely to be delinquent in payments on other accounts, less likely to file for bankruptcy, less likely to default on medical bills, and less likely to experience foreclosure. Not only that, they were more likely to move to another state or change jobs, and their income rose by $3,000. Lifting the burden of student debt allowed people to take chances, make positive changes, and start to get ahead.
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