WASHINGTON — President Joe Biden announced Wednesday that he will cancel $10,000 in federal student loans for millions of borrowers, following through on a campaign promise to address the burden of student debt.
Borrowers who earn less than $125,000 a year, or $250,000 for couples who file taxes jointly, will be eligible for debt cancellation. Pell Grant recipients, who make up the majority of student loan borrowers, will be eligible for an additional $10,000 in debt relief, for a total of $20,000.
Biden is also extending the pause on federal student loan payments for a final time through Dec. 31. It had previously been scheduled to expire Aug. 31.
Speaking at the White House, Biden described how the cost of higher education has grown significantly over the past few decades.
“An entire generation is now saddled with unsustainable debt in exchange for an attempt, at least, at a college degree,” Biden said. “The burden is so heavy that even if you graduate, you may not have access to a middle-class life that a college degree once provided.”
Borrowers can qualify for debt forgiveness based on their incomes in either the 2020 or the 2021 tax year. To receive relief, most qualified borrowers will need to fill out an application with the Education Department, which said it will make the forms available in the coming weeks.
The debt forgiveness applies to undergraduate, graduate and Parent Plus loans. Current students can also qualify, but students who were claimed as dependents will be eligible based on their parents’ income, rather than their own.
Democrats and student debt relief advocates have pressured Biden for months to use his presidential authority to cancel student debt.
Ahead of the announcement, he had come under criticism for waiting until just days before the Aug. 31 deadline to announce an extension of the loan payment moratorium, leaving millions of borrowers unclear about whether they would have to start making payments for the first time in more than two years.
Biden on Wednesday also announced a new income-driven repayment plan that would cap monthly payments for undergraduate loans at 5% of a borrower’s discretionary income, down from the rate of 10% under most existing plans.
The White House said that 43 million student loan borrowers will benefit and that as many as 20 million borrowers will have their full remaining student loan balances wiped out.
Still, the move falls short of the $50,000 in debt forgiveness that some Democrats have called for, and the narrow scope of the cancellation is likely to frustrate student debt relief advocates who were pushing for broader action. Some advocates also warned that means-testing the relief plan announced Wednesday would make implementation more challenging and argued that extending the payment pause for a few months would not be enough time to adjust borrowers' balances.
“While this announcement is a major win for many, it is important to stress that $10,000 will leave many others still crushed by debt, and important details will determine who has access to much-needed relief,” Natalia Abrams, the president and founder of the Student Debt Crisis Center, said in a statement.
The White House emphasized that the income cap on debt cancellation would ensure the relief was going to middle- and low-income people, not high-earning graduates. Roughly 90% of those eligible earn less than $75,000, Biden said.
He also downplayed concerns from Republicans and some Democrats that debt cancellation could make inflation worse. Biden said resuming student loan payments in tandem with targeted relief would mean more money would start flowing back to the Treasury Department.
“Independent experts agree that these actions taken together will provide real benefits for families without meaningful effect on inflation,” Biden said.
Federal student loan holders have not been required to make payments since March 2020, when President Donald Trump signed the CARES Act, which paused payments through September 2020 and stopped interest from accruing to alleviate the economic impact of the coronavirus pandemic.
Trump later took executive action to extend the deferral period through January 2021. Since he took office, Biden has issued five more extensions.
The moratorium does not apply to borrowers with privately held loans.
About 45 million people in the U.S. have student debt. The Federal Reserve estimated that in the second quarter of 2022, people owed more than $1.7 trillion in student loans.
While most student borrowers owe less than $20,000, people with smaller amounts of debt often have a harder time paying it off because they might not have completed their degrees or they might have degrees with lower earning power compared to people with more debt.
Studies also show that students of color are more likely to take on student debt and struggle disproportionately to pay it back. The highest default rates are among students who attended for-profit institutions.