How the Biden administration student loans relief plan really works

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How the Biden administration debt relief plan really works: Will you get your student loans forgiven?

After months of deliberation, the Biden administration finally unveiled its plan to end the moratorium on student debt repayment first implemented by the Trump administration in March 2020. While everyone knew this was coming, the biggest focus was on President Joe Biden’s promise to also cancel some outstanding student debt.

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The plan, which would likely lead to hundreds of billions worth of student debt being canceled, is well short of student debt activists’ goal of full cancellation and quite a bit larger than the piecemeal debt cancellation that the Biden administration’s Education Department has been pursuing until now.

Biden announced Wednesday that the administration will do the following:

  • Forgive $10,000 worth of student debt for borrowers making less than $125,000.
  • Drop $20,000 of debt from borrowers who received Pell Grants.
  • Cap payments for some undergraduate loans at 5 percent of income.

The relief plan will likely affect tens of millions of borrowers and hundreds of billions worth of debt when it kicks in. The student loan repayment moratorium will be extended one final time to Dec. 31 — meaning payments will restart in 2023.


There’s about $1.6 trillion in student debt outstanding and 46 million student borrowers. Around 24 million borrowers have $20,000 or less in debt, and 14 million have $10,00 or less, according to Education Department data.

The White House said the forgiveness plan will affect 95 percent of borrowers. That includes wiping out the debt for 20 million borrowers, and 27 million others would be eligible for the maximum $20,000 of debt relief.

The administration also included some reforms about how student debt is repaid going forward.

The Education Department will also start a rule-making process aimed at overhauling its existing income-based repayment program by setting a cap on monthly loan payments at 5 percent of discretionary income for eligible borrowers.

The Education Department’s proposal is intended to decrease the burden of existing and future loans for those who have trouble paying them off.


Right now, income-based repayment plans tend to ask borrowers to pay 10 percent of their income in order. This new plan would lower than to 5 percent and expand the definition of “nondiscretionary” income that’s shielded from repayment, while cutting the total time of repayment from 20 years to 10 years for low-income borrowers with $12,000 or less in loans.

Since the Biden administration came into office, there has been an impassioned dispute between higher education experts, activists and elected officials over debt forgiveness, largely among Democrats and allies of Biden.

While Sens. Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) argued for near-universal debt forgiveness, on the campaign trail, Biden called for $10,000 of forgiveness per borrower. The plan announced Wednesday is both more targeted — there’s an income cap on the forgiveness — and a little more generous, with the $20,000 for Pell Grant recipients. The Biden administration’s plan is the culmination of years of debate among economists, analysts and activists over how best to address the problem of student debts that are unlikely to be paid back.

One side of the debate, including former Obama administration officials, saw debt forgiveness as a program that would disproportionately benefit the well-off and instead favored targeted relief toward low-income borrowers, while other activists and more progressive experts wanted to maximize relief per borrower. The administration’s plan is likely to gratify and disappoint those on both sides — it both includes some targeted relief in the income-based repayment reforms and relief for Pell Grant recipients, while including a baseline of widespread debt relief.

The plan is sure to be controversial on both substantive and procedural grounds

While the Education Department released a memo defending its ability to cancel debt unilaterally, debt cancellation on this scale is, at best, untested.


Republicans have already attacked the plan as a handout to an above-average-income group that tends to vote Democratic. “Biden’s student loan socialism is a slap in the face to every family who sacrificed to save for college, every graduate who paid their debt and every American who chose a certain career path or volunteered to serve in our Armed Forces in order to avoid taking on debt,” Senate Minority Leader Mitch McConnell (R-Ky.) said Wednesday in a statement.

While many students see the plan as a godsend, it doesn’t answer bigger questions about the higher education financing systems.

The federal government gives out approximately $100 billion in student loans a year, and the people overseeing that program have functionally admitted that for a broad swathe of borrowers, their college education has, in some sense, not been worth what the federal government paid and what the borrower now owes. After all, if college education was a perfectly reliable path to persistently higher incomes, the student debt crisis wouldn’t exist.

But even with the new debt forgiveness in place, the system will still be churning out students with new debt. While some will now face lower payments when they graduate, there is no policy in the pipeline to reform the overall system that built up $1.6 trillion in debt in the first place.

Thanks to Lillian Barkley for copy editing this article.

  • Matthew Zeitlin
    Matthew Zeitlin

    Domestic Economics Reporter

    Matthew Zeitlin is an economics reporter at Grid focused on the domestic impact of major stories such as coronavirus, the supply chain and economic volatility.