Biden's student loan plan wipes out 20 million Americans' debt, but leaves millions behind

PResident Biden himself warned of the backlash against his plan to forgive up to $20,000 of a borrower in federal student loan debt on Wednesday. “Some think it’s too much,” he said in remarks at the White House. “Some think it’s too little. But I believe my plan is responsible and fair. It focuses the benefit on middle class and working families.”

The plan would forgive $10,000 of federal student loan debt for people making less than $125,000 a year and up to $20,000 for borrowers who attended college with Pell Grants, designed to help low-income students and meet the same income requirements.

His long-delayed decision would provide debt relief to about 43 million Americans and eliminate student debt for about 20 million, according to White House estimates.

Nearly eight million borrowers who qualify for forgiveness and whose financial information is already on file with the Department of Education may have debt forgiveness automatically applied to their accounts. The remaining borrowers will have to apply through an application that will be released later this year.

About 45 million Americans owe a total of $1.6 trillion in federal student loan debt. According to White House estimates, Biden’s plan would leave about two million federal borrowers without student debt relief, and about 25 million still with some sort of student debt. All private loans will not be affected by the program.

Criticism of the plan

Criticism of his plan was swift and came from both ends of the political spectrum.

NAACP President Derrick Johnson said the policy would leave too many black borrowers behind. “President Biden’s decision on student debt cannot become the latest example of a policy that has left black people — especially black women — behind,” he said in a statement. “This is not the way you treat black voters who turned out in record numbers and provided 90% of their vote to save democracy again in 2020.”

While white borrowers collectively owe just over half of the nation’s student debt, black borrowers owe more on average. Black women carry the most significant burden of student debt, owing an average of $41,466 one year after graduating from college, compared to $27,606 for Asian women and $33,851 for white women. according to the American Association of University Women.

And that burden is compounded by the gender pay gap and the racial wealth gap that black women face in the workplace. Four years after graduation, black graduates owe an average of nearly $25,000 more than white graduates, according to a 2016 Brookings report.

“We tend to look at who struggles the most with student debt, and that’s black borrowers. They’re more likely to borrow and borrow more and struggle more with repayment,” says Victoria Jackson, assistant director of higher education policy at the Education Trust, a nonprofit that advocates for equity in education.

“When we look at that gap, $10,000 or $20,000 is just not enough to cover what people are borrowing to complete a bachelor’s degree,” Jackson says.

And she worries that the means-tested policy of excluding those making more than $125,000 ignores the reality of the racial wealth gap. “For black people, even if they make over $125,000, that’s often not an accurate reflection of the resources they have to pay off their student loans,” she says.

The education trust is among the advocacy groups calling for debt cancellation of $50,000 per borrower.

Massachusetts Sen. Elizabeth Warren, Vermont Sen. Bernie Sanders and other Democrats had won $50,000 in universal loan forgiveness, saying it would be an important step toward closing the racial wealth gap and helping black borrowers who have been disproportionately burdened by student debt. But Biden indicated months ago that his plan would not go that far.

“We must do more,” Sanders said in a statement Wednesday. “At a time of huge inequality in income and wealth, education, from preschool to college, should be a basic right for all, not a privilege for the wealthy few.”

Charlie Eaton, an assistant professor of sociology at the University of California, Merced, says the policy will be “transformative.” But recently he posted analysis showing that eliminating $50,000 of debt for those making less than $150,000 (a higher cap than Biden’s policy) would wipe out the entire debt burden for 76% of borrowers, compared to eliminating the burden for 32% from borrowers when eliminating $10,000 of debt.

But while many liberal advocates have called for more substantial debt cancellation, conservatives have been quick to criticize the Biden administration for taking any action. Senate Republican leader Mitch McConnell called the policy “a slap in the face to every family who sacrificed to save for college, every graduate who paid off their debt, and every American who chose a career or volunteered in our armed forces to avoid taking on debt.

“This policy is astonishingly unfair,” he said.

“Today, [Biden] force every American who hasn’t attended college or already paid off their loans to now pay off the debts of others,” Florida Sen. Rick Scott said in a tweet.

What’s in the plan

Under the Biden administration’s plan, about 27 million people would be eligible to receive up to $20,000 in debt relief because they received Pell Grants to attend college, according to an estimate by the U.S. Department of Education. Pell Grant recipients account for about 60% of all student loan borrowers, and black students are about twice as likely to receive a Pell Grant as white students.

The White House estimates that 90 percent of the debt relief will go to those earning less than $75,000 a year.

Biden also expanded on the pandemic pausing federal student loan payments “one last time” until December 31. And it reduced the monthly payments borrowers will have to make on their loans from 10% to 5% of their discretionary income, while eliminating added interest, ensuring borrowers’ loan balances don’t grow as they make monthly payments.

The plan would cost more than $300 billion over 10 years, according to Penn Wharton’s budget model. But others note that some of the rising student debt is unlikely to be paid off by borrowers in the first place.

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Write to Katie Riley c Katie.Reilly@time.com.

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