U.S. President Joe Biden announced on Wednesday (24) that he will waive $10,000 on student loan debts incurred by Americans earning less than $125,000. 639 thousand) per year.
There were months of anticipation in relation to this promise he made in the campaign. Biden also extended a loan repayment suspension in place since March 2020, at the time of the Covid pandemic, until the end of the year.
In a Twitter announcement outlining details of the plan, he highlighted the “relief for working and middle-class families preparing to resume federal student loan payments in January 2023.”
Biden also said graduate loaners would be able to limit payments to 5% of monthly income, a move that could significantly reduce the bills of millions of debtors. Current income-based government plans generally limit payments to 10% of the borrower’s discretionary income.
The debt relief, while much less than the amount requested by some Democrats, comes after months of White House deliberations over justice and fears that the plan could exacerbate inflation ahead of the midterm elections. The plan will almost certainly face appeals in court.
In the U.S., 45 million people owe a total of $1.6 trillion in federal college loans — more than they owe in car loans, credit cards, or any debt owed to them. consumption, except mortgages.
Many Democrats have argued that debt relief is necessary to address racial disparities in the economy. But critics say the widespread pardon is unfair to those who tightened their belts to pay for college. Republicans and some Democrats further say this will increase inflation, giving consumers more money to spend.
The White House sought to address these economic concerns by targeting aid, which will only be extended to borrowers earning less than $125,000 a year or families earning less than $250,000. The government says that 90% of the relief will go to families earning $75,000 a year or less.
Students who have received Pell Scholarships for low-income students will be entitled to an additional $10,000 in debt relief.
At first glance, the measure could cost taxpayers an estimated $300 billion or more in money actually borrowed that will never be repaid. But the true cost is harder to calculate, and less, because much of that debt was likely to go unpaid. More than 8 million people — 1 in 5 borrowers — failed to repay their loans before the pandemic. Many had small balances and will now be able to have their debts cancelled.
Democratic lawmakers and progressive groups have argued that tackling economic racial disparities would require a $50,000 waiver, citing reports that show black borrowers end up having higher average balances than their white counterparts.
Representative Tony Cardenas, who has met with the White House to advocate for debt cancellation, said even limited financial relief could be the necessary dynamism for Biden’s party ahead of November’s elections. “Many young people will be able to breathe a sigh of relief, they will be able to buy a house soon. They can make plans to start a family early.”
He and other members of the Latino caucus helped increase pressure on Biden. But at the White House top advisers discussed the political and economic ramifications of the decision. The president would be concerned that the project would be seen as a donation, which would be an affront to those who paid their tuition or those of their relatives.
Some argued that Biden would have no legal authority and should work with Congress rather than using an executive act.
Rising inflation also complicated the process. “In the midst of Biden’s crushing inflation, how could the president justify a student loan grant that ignores the Americans most hurt by inflation?” asked Republican Representative Kevin Brady last month.
Biden’s economic advisers, however, argued that resuming loan payments and combining forgiveness with income caps would have a negligible effect on rising consumer prices. Chief of Staff Ron Klain also pointed out that aid could galvanize young voters, who are increasingly frustrated with the president.
Legal challenges are expected, although it is unclear who would have standing to take the case to court. A recent article in the Virginia Law Review argued that the answer may be no one: states, for example, have little say in the operation of a federal lending system.
