Student debt is a crippling fiscal and financial burden for millions of Americans, with a total well into the trillions. More than six in ten (62%) college seniors who graduated from public and private nonprofit colleges in 2019 had student loan debt racking up to an average of $28,950, according to The Institute for College Access & Success. The third of all 18 to 29-year-olds in the United States who have student debt substantiates the statistic.
President Biden alleviated some of that burden on Wednesday, Aug. 24 when he announced his historic plan to forgive up to $20,000 in debt for millions of Americans making less than an annual income of $125,000 ($250,000 for married couples), in either the 2020 or 2021 tax year.
“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 the middle-class life that the college degree once provided.”
The Department of Education will provide up to $20,000 in debt cancellations to Pell Grant recipients, a non-repayable subsidy awarded to low-income students who demonstrate financial need and up to $10,000 in debt for non-Pell Grant recipients. According to the White House, “The Department of Education estimates that roughly 27 million borrowers will be eligible to receive up to $20,000 in relief, helping these borrowers meet their economic potential and avoid economic harm from the COVID-19 pandemic.”
Biden’s plan will not only provide relief for up to 43 million borrowers but cancel the full remaining balance for roughly 20 million borrowers. Most borrowers will need to apply for the program online, according to StudentAid.gov, in an application that will become available in the coming weeks.
In light of Biden’s move for such a major cancellation, concerns for the economy and inflation arise. “A one-time cancellation of $10,000 for each borrower earning up to $125,000 a year could cost the government nearly $300 billion,” according to an estimate from the Penn Wharton Budget Model as reported by CNN Politics. Additional forgiveness for Pell grant recipients was not included in the estimate.
Student loan debt may also increase inflation–though experts expect the amount to be relatively low. Students wouldn’t receive a lump sum of money if a large portion of their debt was canceled. Therefore, a considerable decrease is to be expected in monthly payments toward student loan payments.
Biden has since faced some political backlash, predominantly from Republican lawmakers. Five states— North Carolina, Arkansas, Wisconsin, Minnesota, and Mississippi— claim that the student debt forgiveness under President Biden’s new plan could be treated as taxable income. Republican lawmakers have begun to strategize a potential legal case against the Biden Administration strong enough to overturn President Biden’s forgiveness plan.
“I think any real lawyer knows that there is not a legal basis for doing what they’re doing,” Arizona Attorney General Mark Brnovich, a Republican, told CNN Thursday, calling the policy “fundamentally unfair.”
The U.S. Department of Education has said its application for loan cancellation will be available by or before October, however, the possibility of a legal challenge does create some cause for concern.
“Even if a legal challenge doesn’t succeed in blocking the president’s plan, it will probably cause delays in implementing the loan forgiveness,” higher education expert Mark Kantrowitz said during a CNBC Twitter Spaces appearance Friday.
No lawsuit has been filed as of yet.
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