Biden announces student loan forgiveness plan

President Joe Biden’s student loan plan is a potential game changer for Americans drowning in debt. And yet the impact on the economy at large is likely to be so tiny that it will be hard to measure.

Biden announced Wednesday that his administration will forgive $10,000 for borrowers who make less than $125,000 per year. Low-income borrowers who went to college on Pell Grants will receive up to $20,000 in student loan forgiveness.

This debt relief will give tens of millions of borrowers some breathing room at a time when the cost of living has skyrocketed.

Critically, the cancellation of student debt is being paired with a plan to lift the freeze on federal student debt payments, beginning in Jan. 2023. That means many Americans who haven’t had to pay down student loans since March 2020 will have to begin doing so, eating into their cash flows.

Despite fears that Biden’s student debt relief will fuel already-crippling inflation, economists say the combined impact will be minimal on the economy at large.

“The end of the moratorium will weigh on growth and inflation, while the debt forgiveness will support growth and inflation,” Moody’s Analytics chief economist Mark Zandi told CNN. “The net of these cross-currents is largely a wash.”

Moody’s estimates that the combined impact will reduce real GDP in 2023 by 0.05 percentage points, drive down unemployment by 0.02 percentage points and cut inflation by 0.03 percentage points. In other words, a very tiny effect.

“We’re not talking about raising or lowering inflation by a percentage point or even a half a percentage point. We’re talking about a really small impact,” Dean Baker, co-founder of the Center for Economic and Policy Research, told CNN in a phone interview. “But for individuals this makes a big difference. It wipes out more than half the debt for more than half the borrowers. That’s a big deal.”

Millions of borrowers impacted: The typical undergraduate student with loans graduates with nearly $25,000 in debt, according to a Department of Education analysis cited by the White House.

Up to 43 million borrowers will receive relief from Biden’s student debt plan, including eliminating the full remaining balance for about 20 million borrowers, according to the White House.

The inflationary impact would have been larger if Biden did not impose an income threshold on the debt relief or if he heeded calls from some progressives to wipe out $50,000 in student debt.

$300 billion price tag: Of course, there is a cost to canceling student debt. And that cost will be picked up by taxpayers just when deficit reduction had suddenly become a bipartisan trend in Washington.

A one-time cancellation of $10,000 for each borrower earning less than $125,000 will cost the government approximately $300 billion, according to an estimate this week from the Penn Wharton Budget Model. (The Penn Wharton model did not include the cost of wiping out up to $20,000 in student debt for Pell Grant recipients).

Although $300 billion isn’t massive for a $25 trillion economy, the cost of the student debt forgiveness would cancel out the projected federal budget deficit savings from the just-passed Inflation Reduction Act.

“All the deficit reduction will be wiped out,” Marc Goldwein, senior vice president and senior policy director for the Committee for a Responsible Federal Budget, told CNN’s Poppy Harlow.

Note that the White House has hailed the deficit reduction aspect of the Inflation Reduction Act as an important inflation-fighting measure. And this marked a significant shift after years of both parties adding to America’s mountain of debt to fight the Covid-19 pandemic.

For Sara Archibald and her husband, becoming foster parents was something they always wanted to do. Now, with the Biden administrations new proposal to forgive up to $20,000 in student loan debt for some borrowers, she says it’s a step closer to reality.

Archibald graduated from the University of West Georgia with her bachelor’s in English in 2016. She works full-time now as a private nanny in Dayton, Ohio, where her husband works as an attorney.

“There was pressure from my parents: you go to college and you get a degree, so that’s what I did,” she told CNN. “The other side of that was there was no financial support from my parents to go to school.”

During her time as an undergraduate, which took longer than four years due to financial hardships and having to work jobs to supplement the loans she had taken out, she said she was on her own. Having to pay for tuition and books, she said she didn’t fully understand how interest or finances work — and found herself in tens of thousands of dollars of debt.

Something she has wrestled with in her adult life.

Now, because she did receive some Pell Grants, Archibald anticipates $20,000 of forgiveness would eliminate half of her debt. She said she will pay the remaining balance using the money she saved working a second job at Target.

She said the new proposal has given her and her husband the “freedom of time” as they prepare to become foster parents. Having one parent with the flexibility to spend more time at home opens them up to take more placements from the foster agency, she explained.

“Not having to work full time is invaluable when you have children in your home that need so much attention and love and support,” Archibald said. “We’re kind of opening ourselves up to the ability to say yes to more.”

She said having debt does not just come as a financial burden, but it also has a human impact on families too.

“Theres a lot of shame built around student loans and I think this alleviated a lot for a lot of people,” she said. “Just knowing how many student loans I had and I didn’t feel like I had a lot to show for it. At points i was like ‘why did I even do this. This was so dumb, I could have done other things and not put myself in this situation.’”

US President Joe Biden announces student loan relief on August 24, 2022 in the Roosevelt Room of the White House in Washington, DC. 

President Biden on Wednesday announced new steps to address federal student loan debt, which includes forgiving up to $20,000 for some borrowers and extending the payment freeze one final time until the end of the year.

We asked readers to tell us what this plan means for them. We received mixed reactions from Americans — both from individuals with student debt and others who already paid their balance in full.

Gabrielle, who lives in West Virginia and did not provide her last name, said the announcement would “lower the burden of monthly expenses” for her and she would no longer have to pay on one of her loans.

“I could actually save a little each month towards my future” and not have to live paycheck to paycheck, she said.

Greg Barrett from Yakima, Washington, called the announcement “wonderful news.” He said he was able to help his two daughters through college, leaving them both with about $20,000 of debt. The President’s move to forgive up to $10,000 for each of them will help them start their adult lives “without this massive debt hanging over their heads.”

Sarah Jensen from Minnesota told a similar story, expressing that forgiving some loans will help alleviate some stress that comes with debt.

Others with high debt said the announced plan is not enough.

Some readers called the plan to forgive up to $10,000 for some borrowers who make less than $125,000 a year or up to $20,000 for Pell Grant borrowers who meet that same income threshold “a drop in the bucket.”

Paul from Ohio, who did not provide his last name, said the cost of higher education is the real root of the problem, adding that Biden’s plan is “treating symptoms not the causes.” He wrote that he wants to see other changes to fix the college system that’s not just money.

Others who submitted their thoughts to CNN said they worry that forgiving some loans rewards predatory lending and irresponsible borrowing. Some also said the more money the government makes available to help pay for loans, the higher colleges and universities will push tuition costs.

Paul Mouer from Dallas, Texas, wrote he is “torn” about Biden’s plan, saying he is “worried this will do nothing to stop the escalation of college costs.”

Some readers said they are frustrated about the plan — especially those who have already paid off their college debt. Several wrote to CNN voicing feelings of “a slap in the face” because they lived frugally, made sacrifices or worked multiple jobs to achieve their financial position without any assistance.

Juan in Texas wrote, “I voluntarily took out loans to pursue higher education, and I knew what I was applying for. I worked extremely hard, lived frugally, and paid off 100k in debt. I doubt this will improve the outrageous inflation our country is facing.”

Tell us what the cancellation of some federal student loan debt means for you here.

Susan Rice speaks during the daily press briefing at the White House in Washington, DC, on Wednesday.

White House officials on Wednesday could not provide a topline price estimate for President Biden’s plan to erase some student loan debt, saying too many unknowns exist to calculate how much the plan might eventually cost. 

Susan Rice, the domestic policy adviser, said it would depend on how many eligible borrowers sign up through the Department of Education to have their loans relieved.

“That remains to be determined,” she said when asked about the cost of the plan.

Bharat Ramamurti, the deputy director of the National Economic Council, offered more explanation in the difficulty in providing a top-line number. He said there are also differing estimates of default rates, which would affect the total figure. 

“The assumptions and the analysis about how much are we expecting to collect — some of that changes over time based on certain macroeconomic conditions and other factors,” he said. 

And he said providing relief would also bring in additional tax revenue if those benefiting start small businesses or purchase homes.

A one-time cancellation of $10,000 for each borrower earning at least $125,000 a year could cost the government nearly $300 billion, according to an estimate from the Penn Wharton Budget Model. Additional forgiveness for Pell grant recipients was not included in the estimate.

Reactions continue to pour in after President Biden announced his plan for forgiving student debt for some borrowers, with some lawmakers praising the plan and others railing against it.

Here’s what Democrats and Republicans are saying:

Senate Majority Leader Chuck Schumer and Democratic Sen. Elizabeth Warren

In an interview with CNN after the announcement, Warren said it was “a great day.”

With regards to college affordability, she said “This is the first step: we deal with the debt, we deal with payments going forward and now it is going to be up to Congress to make sure we do more to hold colleges and universities accountable.”

Senate Minority Leader Mitch McConnell

In a statement, the Kentucky Republican said that Biden’s “policy is astonishingly unfair.”

House Speaker Nancy Pelosi

On Twitter, the California Democrat said that Biden’s action is “bold” and “a strong step in Democrats’ fight to expand access to higher education.”

“By delivering historic targeted student debt relief to millions of borrowers, more working families will be able to meet their kitchen table needs as they recover from the pandemic,” she continued.

Sen. Bernie Sanders

Sanders called Biden’s student loan relief plan “an important step forward in providing real financial help to a struggling middle class,” adding that more has to be done.

“If the United States is going to effectively compete in the global economy we need the best educated workforce in the world, and that means making public colleges and universities tuition free as many other major countries currently do – and that includes trade schools and minority-serving institutions as well. In the year 2022, in the wealthiest country on earth, everyone in America who wants a higher education should be able to get that education without going into debt,” Sanders continued.

Democratic Sen. Jeanne Shaheen

Republican Sen. Chuck Grassley

Republican Sen. Mitt Romney

President Biden said cutting the federal budget deficit will pay for his student loan relief plan.

“I hear it all the time: ‘how do we pay for it?’ We pay for it by what we’ve done; last year, we cut the deficit by more than $350 billion. This year, we’re on track to cut it by more than $1.7 trillion by the end of this fiscal year, the single largest deficit reduction in a single year in the history of America. And the Inflation Reduction Act is going to cut it by another $300 billion over the next decade,” Biden said at the White House.

“I will never apologize for helping … working Americans and middle class, especially not to the same folks who voted for a $2 trillion tax cut that mainly benefitted the wealthiest Americans and the biggest corporations, that slowed the economy, didn’t do a hell of a lot for economic growth, and wasn’t paid for and racked up this enormous deficit,” he said.

Biden then referenced Covid-19 pandemic loan forgiveness to small businesses. “They needed help. It was the right thing to do,” he said.

“The outrage over helping working people with student loans, I think, is simply wrong. Dead wrong,” he added.

President Joe Biden speaks about student loan debt forgiveness alongside Education Secretary Miguel Cardona.

In closing his remarks, President Biden touted his student debt relief plan as an action that makes good on his promise to “grow the economy from the bottom up and the middle out.” 

“Because when we do that, everybody does better. Everybody does well. The wealthy do very well. The poor have a way up and the middle class can have breathing room,” he added.

The President said that this plan will help America “remain the most competitive nation in the world with the strongest economy in the world with the greatest opportunities in the world.” 

In addition to forgiving the student loan debt of some borrowers, President Biden said he is also proposing a federal rule aimed at making the student loan system more manageable.

Biden called the proposal an “income driven repayment plan” that he wants to be “simple and fair.” It is aimed at both current and future borrowers, as payments are set to resume after Dec. 31.

Discretionary income is the money left over after paying for necessitates like housing and food, Biden explained. That 5% rate is cut in half from the current 10% payment rate that exists now, he added.

For those whose original balance was less than $12,000, Biden said these students will be done paying after 10 years.

“These changes will save more than a thousand dollars a year on average for the borrower,” the President said.

President Biden said he knows his federal student loan relief plan will not “make everybody happy.”

He noted that some critics say his plan is addressing too little and some say that the cuts are too much.

“I find it interesting how some of my Republican friends who voted for those tax cuts and others think that we shouldn’t be helping these folks,” he said.

Biden also noted that this plan is part of his administration’s effort to make college more affordable.

“It includes unprecedented investments — nearly $6 billion in historic Black colleges, much of which is focused on pandemic relief to help students cover tuition and other costs so they can stay in school,” he added.

President Biden said his announcement on student loan relief is targeted to help working and middle class Americans.

“No high-income individual or high-income household on top of the 5% — in the top 5% of incomes, by the way — will benefit from this action, period. In fact, about 90% of the eligible beneficiaries make under $75,000 as a family,” Biden continued.

President Biden said his federal student loan relief plan will allow Americans with student debt to look forward to other milestones in life.

“When this happens, the whole economy is better off,” he added.

President Biden announced his student loan relief plan, stating that he is “honoring” his campaign commitment, during remarks from the White House.

Biden also said that low-income families who qualify for Pell Grants will “have their debt reduced $20,000. Both of these targeted actions are for families who need it the most.”

President Biden is formally announcing his student loan forgiveness plan in remarks from the White House alongside Education Secretary Miguel Cardona.

The President’s sweeping plan on student loans follows extended, down-to-the-wire negotiations at the White House among stakeholders and lawmakers ahead of when payments were set to resume at the end of this month.

The decision is already disappointing many, with those on the left arguing that the President should have provided even more loan forgiveness and those on the right asserting that Biden is punishing Americans who avoided going into debt. But it fulfills one of Biden’s campaign promises, issuing major reforms to America’s student loan system and providing relief to millions of current and future borrowers.

Senate Majority Leader Chuck Schumer and President Joe Biden speak briefly to reporters as they arrive at the US Capitol in July 2021.

Senate Majority Leader Chuck Schumer has been among a handful of top Democrats who have lobbied President Biden for much of his term to cancel student debt.

During the presidential transition, Schumer made the pitch privately to Biden at a Nov. 20, 2020 meeting in Wilmington, Delaware, according to a person familiar with the matter.

The meeting, which included House Speaker Nancy Pelosi, focused on the Democrats’ agenda — and Schumer there made a pitch for Biden to take broad steps to wipe away student loan debt.

Schumer, along with Sen. Elizabeth Warren and other Democrats, continued to make the case to Biden, as they even included a provision in the 2021 American Rescue Plan to make any student loan forgiveness tax free through 2025, a move aimed at pushing the White House to take that step since it otherwise could be considered as taxable income.

The push even continued after the deadly massacre at a Buffalo supermarket, when Biden traveled to the city last May for a funeral for victims of the mass shooting. On Air Force One and on the way back to Washington on May 17, Schumer made the argument to Biden directly that canceling student loan debt was the “right thing to do economically and morally,” the source said.

Rep. Tim Ryan speaks at a union rally in Toledo, Ohio, on August 20.

Some Democrats in tough congressional races are sharply criticizing President Biden’s decision on student debt. 

Rep. Tim Ryan – the Ohio Senate Democratic nominee – argued that it “sends the wrong message to the millions of Ohioans without a degree working just as hard to make ends meet.” 

Ryan said Congress should instead pass an “across-the-board tax cut for working- and middle-class families,” cancel “medical debt,” create “targeted forgiveness for essential workers and more opportunities for student borrowers to refinance their loans.”

“Instead of forgiving student loans for six-figure earners, we should be working to level the playing field for all Americans,” said Ryan.

Rep. Chris Pappas speaks at a press conference outside the US Capitol in May.

New Hampshire Democratic Rep. Chris Pappas also blasted Biden’s move for raising the deficit without tackling the “underlying issue” of higher education’s high costs.

“This announcement by President Biden is no way to make policy and sidesteps Congress and our oversight and fiscal responsibilities,” said Pappas. “Any plan to address student debt should go through the legislative process, and it should be more targeted and paid for so it doesn’t add to the deficit.”

“The President’s plan also doesn’t address the underlying issue of the affordability of higher education, and it is clear that the high cost continues to limit opportunities available to students,” added Pappas.

Other vulnerable Democrats said they supported Biden’s move, praising him for not yielding to the wish of some progressives to go even further and cancel all student debt.

New Hampshire Sen. Maggie Hassan called the administration’s announcement “a balanced compromise approach that will help those who need it the most.”

President Biden on Wednesday announced his plan to address student loan debt, which includes debt forgiveness for certain borrowers and extending the pandemic-related payment pause.

The Biden administration has already canceled nearly $32 billion of the $1.6 trillion in outstanding federal student debt by expanding existing forgiveness programs for public-sector workers, disabled borrowers and students who were defrauded by for-profit colleges.

Here are details CNN has learned of Biden’s new plan, including how much will be forgiven and who is eligible.

Who qualifies? The plan applies to federal student loan borrowers.

How much forgiveness will they get? The amount of debt canceled depends on whether the borrower received a Pell grant to attend college. A federal Pell grant is only given to undergraduate students who “display exceptional financial need and have not earned a bachelor’s, graduate, or professional degree” and “does not have to be repaid, except under certain circumstances,” according to the Department of Education’s Federal Student Aid office.

Individual borrowers who make less than $125,000 yearly and married couples or heads of households who make less than $250,000 yearly will have up $10,000 of their federal student loan debt forgiven if they did not receive a Pell grant as an undergraduate student, per the FSA website.

Individual borrowers who make less than $125,000 yearly and married couples or heads of households who make less than $250,000 yearly but did receive a Pell grant as an undergraduate student will have up $20,000 of their student loan debt forgiven.

What steps do eligible borrowers have to take? Nearly 8 million borrowers may be able to receive debt forgiveness automatically because the Department of Education already has their income information, FSA says.

The Biden administration will launch an application in the coming weeks for borrowers to provide their income information or if borrowers are unsure if the department has their income information already. FSA says the application will be available before the federal student loan repayment pause ends on December 31.

Borrowers can sign up for updates on when the application is open at the Department of Education’s subscriptions page.

How will future repayments for remaining debt work? Student loan repayment will be paused again until Dec. 31, 2022, with repayments starting in January 2023.

The Biden administration is also proposing a rule to create a new income-driven repayment plan in which borrowers pay no more than 5% of their monthly income on undergraduate loans, a decrease from the current 10% threshold.

The rule would also increase the amount of income that is considered “non-discretionary income” so no borrower earning below 225% of the federal poverty level will have to make a monthly payment.

For borrowers with loan balances of $12,000 or less, loan balances would be forgiven after 10 years of payments instead of the current 20-year mark, under the proposed new income-driven repayment plan.

And to help prevent a borrower’s loan balance from growing while the individual makes monthly payments, under the proposed rule the Biden administration would cover unpaid monthly interest, even if the monthly payment is $0 due to the borrower’s income level.

About a third of people in the US with student debt owe more than $40,000.

About 3.7 million people ages 25-34 have loans of between $20,000-$40,000, according to the US Department of Education, with 3.2 million owing $10,000-$20,000.

The amount of household debt made up by student loans has increased from nearly 4% to almost 10% from 2004 to 2022, only decreasing during the Covid-19 pandemic.

President Biden plans to formally announce his plan for forgiving student debt for some borrowers Wednesday afternoon, which includes forgiving $10,000 for borrowers who make less than $125,000 per year and extending the payment freeze one final time.

The announcement has three key parts, the official said:

First, it includes $20,000 debt cancellation for borrowers who received Pell Grants while they were in college. That applies to borrowers making less than $125,000 or $250,000 if they are part of a household. Sixty percent of borrowers, the official said, have Pell Grants, noting that the “majority of borrowers are eligible for $20,000 in relief.” The official said that a “strong majority of borrowers are folks who come from lower income, middle income.”

The federal student debt totaling $1.6 trillion for over 45 million borrowers is a “financial weight on America’s middle class,” a senior administration official said, noting that the burden “falls disproportionally on Black borrowers.” 

The official noted that nearly 90% of those relief dollars “will go to those earning less than $75,000 a year,” and suggested that it will help “narrow the racial wealth gap.” 

Second, the US will also extend the pause on student loan payments “one final time” through Dec. 31, 2022. 

The official also addressed the move’s impact on inflation.

“The President is taking one step that has a negative fiscal impulse, collecting more payments from borrowers, and one step that has a positive fiscal impulse, offering debt relief to borrowers most in need. In terms have an impact on inflation relative today our view is that those steps largely offset. There are certain conditions and assumptions under which it could well be neutral or deflationary,” the official said.

Third, the Department of Education will reform the income-driven repayment system, capping what borrowers pay each month, the official said.

“The President will announce proposed reforms to income-driven repayment so that both current and future low and middle-income borrowers will have smaller monthly payments. The proposed rule for undergraduate loans would cut in half the amount that borrowers have to pay each month from 10% to 5% of discretionary income,” the second official said.

Borrowers eager to take advantage of President Biden’s debt relief program will receive more details from the Department of Education in the coming weeks about how to apply, a senior administration official said.

Roughly 8 million of those borrowers may already have their income information on file with the government and could receive debt relief automatically, the official said.

But the remainder will need to fill out a “simple application” showing their income before benefiting from the debt relief, the official said.

A specific date for the application’s launch wasn’t provided.

President Biden announced his plan Wednesday for forgiving student debt for some borrowers.

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