10 things to know about Biden’s new student debt cancellation plan

A student walks on the University of Illinois at Chicago campus.

Pat Nabong/Sun-Times

Here are some highlights of President Joe Biden’s student loan relief plan announced on Wednesday:

1. Borrowers who paid for their undergraduate tuition in part or in whole with Pell Grants — who have individual adjusted gross incomes below $125,000, or not more than $250,000 for married couples — will get up to $20,000 in debt canceled if they have loans held by the U.S. Department of Education.
2. Borrowers who do not have Pell Grants — but meet the above income requirements — will be eligible to apply for $10,000 in debt cancellation.
3. The aim of the program is to help borrowers who come from low- and middle-income backgrounds — that’s why there is an emphasis on helping people with Pell Grants. Securing a Pell Grant depends, in part, on how much a family can contribute to an education. Most Pell Grant recipients come from families earning less than $60,000, with 66% of the students who get Pell Grants coming from families earning less than $30,000.
4. The current pause on federal loan repayments — which began during the COVID-19 pandemic — has been extended through Dec. 31. Payments are to resume in January.
5. The White House said no high-income individual or household — that is, the top 5% of incomes — will get any breaks from this debt cancellation program. The Education Department estimates that 90% of the debt cancellation benefits will go to individuals who earn less than $75,000.
6. According to a White House senior official, the impact of crushing student debt falls disproportionately on Black borrowers. The official said in a Wednesday briefing that one analysis showed that Black borrowers still owe 95% of their original student loan debt 20 years after taking on the loans. An Urban Institute study cited by the White House found “that debt forgiveness programs targeting those who received Pell Grants while in college will advance racial equity.”
7. The Department of Education estimates, when it comes to age, that 21% of the borrowers impacted by this debt cancellation will be 25 or younger and 44% will be between the ages of 26 and 39. About 5% of the borrowers eligible for the break will be senior citizens.
8. According to an Education Department official, the loan forgiveness announced Wednesday is a one-time program. A current student with an Education Department loan can apply for this break. For students taking out loans in the future, the department is proposing revising rules so income-driven repayments are cut in half, from 10% to 5% of discretionary income. The department also wants to shield more income from being considered discretionary in order to keep the monthly payments low so no one is overly burdened by student loan debt going forward.
9. It is not clear yet what loan relief, if any, will be provided to borrowers with private loans, the Education Department official said.
10. Sen. Dick Durbin, D-Ill., who has worked for years against predatory for-profit schools who exploit Pell Grant students — and who has pushed to allow student debt to be wiped out in most bankruptcy proceedings — said on average, Illinois students owe $38,526 after graduation.

Said Durbin, “Tens of millions of Americans are plagued by student loan debt in pursuit of a quality education. Today’s announcement by President Biden is a crucial step to enable low- and middle-income borrowers — especially communities of color — to eliminate their debt so they can buy a home, start a business, save for emergencies and fully participate in our economy. President Biden and Congressional Democrats are delivering on our promises and focused on lifting up working families and the economy.”

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