President Joe Biden announced Wednesday that he will forgive $10,000 in federal student debt for most borrowers, providing unprecedented financial relief to millions of Americans.
Biden will also cancel up to $20,000 for recipients of Pell Grants, a federal scholarship program for low-income college students.
The relief is limited to Americans earnings up to $125,000 per year, or $250,000 for married couples or heads of households. The relief is also capped at the amount of outstanding debt for the borrowing, meaning, for example, a borrowing with only $8,000 in debt but qualifies for $10,000 in relief will only receive $8,000.
Additionally, borrowers who are employed by nonprofits, the military, or federal, state, Tribal, or local government may be eligible to have all of their student loans forgiven through the Biden administration's Public Service Loan Forgiveness (PSLF) program.
In remarks, Biden said that 95% of borrowers would benefit from the plan, or about 43 million people, with 60% of those eligible being Pell Grant recipients. Moreover, nearly 45% of borrowers would have their debt completely canceled, Biden said.
"All of this means people can start finally to crawl out from under that mountain of debt. To get on top of their rent and their utilities. To finally think about buying a home or starting a family or starting a business," Biden said.
American student loan debt is estimated to total $1.7 trillion across all borrower, a balance that greatly exceeds credit card and auto debt. Currently, the average balance is over $30,000, up from estimates of $12,000 in 1980s, CNBC reports.
The unprecedented action by the Biden administration to cancel hundreds of billions of dollars in consumer debt follows years of pressure from advocacy groups like the NAACP and politicians like Senators Elizabeth Warren and Bernie Sanders, and Senate Majority Leader Chuck Schumer. In his presidential campaign, one of Biden's promises was to address the student debt crisis.
Adding to the relief, the White House is extending the student loan payment pause through Dec. 31, 2021. At the start of the coronavirus pandemic, the Trump administration paused federal student loans to offer relief to many Americans amid lockdowns.
After the pause is over, borrowers will be met with a more management repayment system, under the Biden administration's new proposed rule.
The new rule would require borrowers to pay no more than 5% of their discretionary income month-to-month on undergraduate loans, down from 10% under the current income-driven repayment plan. The rule will also cover the borrower's unpaid interest, so the loan balance on an income-driven plan will not increase as long as the borrower is making their monthly payments.
The proposed rule will also raise the amount of income that is considered to be non-discretionary, which is protected from repayment. This will guarantee that no borrower earning under 225% of the federal poverty level--equivalent to a $15 minimum wage--will have to make monthly payments.
The plan also will forgive loan balances after 10 years of payments, down from 20 years, for borrowers with loan balances of $12,000 or less.