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President Biden announces long-awaited student debt forgiveness plan

President Biden announces long-awaited student debt forgiveness plan
President Biden announces long-awaited student debt forgiveness plan
President Biden announces long-awaited student debt forgiveness plan

WASHINGTON (AP) — President Joe Biden on Wednesday announced his long-awaited plan to deliver on his campaign promise to provide $10,000 in debt cancellation for millions of Americans — and up to $10,000 more for those with the greatest financial need.

Borrowers who earn less than $125,000 a year, or families earning less than $250,000, would be eligible for the $10,000 loan forgiveness, Biden announced in a tweet. For recipients of Pell Grants, which are reserved for undergraduates with the most significant financial need, the federal government would cancel up to an additional $10,000 in federal loan debt.

Biden also is extending a pause on federal student loan payments for what he called the “final time” through the end of 2022. He was set to deliver remarks Wednesday afternoon at the White House to unveil his proposal to the public.

If his plan survives almost certain legal challenges, it could offer a windfall to a swath of the nation in the run-up to this fall's midterm elections. More than 43 million people have federal student debt, with an average balance of $37,667, according to federal data. Nearly a third of borrowers owe less than $10,000, and about half owe less than $20,000. The White House estimates that Biden's announcement would erase the federal student debt of about 20 million people.

Student loan debt in Iowa

The overall percent of Iowans who graduate with student loan debt has been declining of late — with a marked decrease from 61 percent five years ago to 56 percent in 2021, according to Iowa College Aid, the state’s student financial aid agency for 60 years.

The percent of Iowa’s community college graduates with debt dropped the most dramatically over that period, from 59 percent to 49 percent, a recent Iowa College Aid report showed.

Still, the average loan debt for Iowa students who did graduate owing money was $24,449 — with both private college students and graduates of Iowa’s public universities in 2021 reporting even higher averages at $31,951 and $28,522, respectively.

Among Iowa’s public universities, specifically, the percent of Iowa residents who borrow has been declining while the percent of non-residents who borrow has jumped.

Where about half of Iowa State University’s non-residents borrowed in the 2016-17 school year — reporting an average debt load of $30,105 — 57 percent did so in the 2020-21 school year, reporting an average debt load of $34,020.

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The University of Iowa reported its percent of non-resident borrowers jumped from 39 percent to 42 percent over that five year period, while its resident borrower percentage dropped from 59 percent to 55 percent.

A comparison of all four-year colleges and universities across Iowa shows Saint Ambrose University with the highest average debt for graduates who have debt at $41,287. Grinnell College reported the lowest average debt among debt-burdened graduates at $18,352.

Iowa’s regent university three-year student debt default rate for the graduate cohort of 2018 was between 2.2 percent and 2.8 percent — below the 4.6 percent for Iowa’s four-year private colleges; 12 percent for Iowa’s community colleges; and 7.3 percent U.S. national average, according to Board of Regents documents.

Iowa Republicans criticize plan

Iowa Gov. Kim Reynolds criticized Biden’s plan.

“At a time of skyrocketing inflation, declining wages, and a national recession, Washington has again turned its back on hardworking Americans in Iowa and across this country,” Reynolds said in a statement issued by her re-election campaign. “President Biden isn’t canceling student debt. He’s shifting the costs to the taxpayer and to those who worked to pay off their loans in full. Enough is enough. Vote to stop the insanity in November.”

Iowa Republican U.S. Rep. Ashley Hinson echoed Reynolds, issuing a statement slamming Biden’s student loan debt cancellation as helping the wealthiest Americans at the expense of working families.

“Those who didn't go to college, or those who have worked hard to pay off their student loans, should not be on the hook for someone else's degree,” Hinson said. “We have to put a check on the Biden administration's out-of-control spending habits and continued disrespect for taxpayers.”

Hinson, in a recent op-ed in The Washington Times, argued Biden’s plan would benefit higher-income Americans who hold almost 60 percent of public student loan debt, and fail to address the root cause of rising tuition costs that spurred more borrowing.

“A huge amount of student loan debt is owed by those with postgraduate degrees, and many can afford to pay their loans back over time,” Hinson wrote.

Instead, Hinson said the Biden administration should work with Congress to address challenges in the U.S. education system and career pipeline.

“Not only is higher education too expensive, but it is also wrong to steer people toward costly degrees instead of incentivizing trade schools and apprenticeship programs that allow students to graduate without debt and with well-paying career opportunities,” Hinson wrote. “By canceling student loan debt, the Biden administration will further drive up the cost of tuition and unfairly punish those who have chosen a path in the trades.”

Proponents say cancellation will narrow the racial wealth gap — Black students are more likely to borrow federal student loans and at higher amounts than others. Four years after earning bachelor's degrees, Black borrowers owe an average of nearly $25,000 more than their white peers, according to a Brookings Institution study.

Continuation of coronavirus-era payment freeze

The continuation of the coronavirus pandemic-era payment freeze comes just days before millions of Americans were set to find out when their next student loan bills will be due. This is the closest the administration has come to hitting the end of the payment freeze extension, with the current pause set to end Aug. 31.

Details of the plan have been kept closely guarded as Biden weighed his options. The administration said Wednesday the Education Department will release information in the coming weeks for eligible borrowers to sign up for debt relief. Cancellation for some would be automatic, if the department has access to their income information, but others would need to fill out a form.

Current students would only be eligible for relief if their loans were originated before July 1, 2022. Biden is also set to propose capping the amount that borrowers pay monthly on undergraduate loans at 5 percent of their earnings.

During the 2020 presidential campaign, Biden was initially skeptical of student loan debt cancellation as he faced off against more progressive candidates for the Democratic nomination. Sens. Elizabeth Warren, D-Mass., and Bernie Sanders, I-Vt., had proposed cancellations of $50,000 or more.

As he tried to shore up support among younger voters and prepare for a general election battle against President Donald Trump, Biden unveiled his initial proposal for debt cancellation of $10,000 per borrower, with no mention of an income cap.

Biden narrowed his campaign promise in recent months by embracing the income limit as soaring inflation took a political toll and as he aimed to head off political attacks that the cancellation would benefit those with higher take-home pay. But Democrats, from members of congressional leadership to those facing tough re-election bids this November, have pushed the administration to go as broad as possible on debt relief, seeing it in part as a galvanizing issue, particularly for Black and young voters this fall.

Democrats are betting that Biden, who has seen his public approval tumble over the past year, can help motivate younger voters to the polls with the announcement.

Although Biden’s plan is changed from he initially proposed during the campaign, “he’ll get a lot of credit for following through on something that he was committed to,” said Celinda Lake, a Democratic pollster who worked with Biden during the 2020 election.

A survey of 18- to 29-year-olds conducted by the Harvard Institute of Politics in March found that 59 percent of those polled favored debt cancellation of some sort — whether for all borrowers or those most in need — although student loans did not rank high among issues that most concerned people in that age group.

Some advocates say Biden's plan still falls short.

“If the rumors are true, we’ve got a problem,” Derrick Johnson, the president of the NAACP, which has aggressively lobbied Biden to take bolder action, said Tuesday.

“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. “This is not how you treat Black voters who turned out in record numbers and provided 90% of their vote to once again save democracy in 2020.”

John Della Volpe, who worked as a consultant on Biden’s campaign and is the director of polling at the Harvard Kennedy School Institute of Politics, said the particulars of Biden’s announcement were less important than the decision itself.

“It’s about trust in politics, in government, in our system. It’s also about trust in the individual, which in this case is President Biden," Della Volpe said.

Republicans, meanwhile, see a political upside if Biden pursues a large-scale cancellation of student debt ahead of the November midterms, anticipating backlash for Democrats — particularly in states where there are large numbers of working-class voters without college degrees. Critics of broad student debt forgiveness also believe it will open the White House to lawsuits, on the grounds that Congress has never given the president the explicit authority to cancel debt on his own.

The Republican National Committee on Tuesday blasted Biden’s expected announcement as a “handout to the rich,” claiming it would unfairly burden lower-income taxpayers and those who have already paid off their student loans with covering the costs of higher education for the wealthy.

Biden’s long deliberations have led to grumbling among federal loan servicers, who had been instructed to hold back billing statements while Biden weighed a decision.

Industry groups had complained that the delayed decision left them with just days to notify borrowers, retrain customer service workers and update websites and digital payment systems, said Scott Buchanan, executive director of the Student Loan Servicing Alliance.

It increases the risk that some borrowers will inadvertently be told they need to make payments, he said.

“At this late stage I think that’s the risk we’re running,” he said. “You can’t just turn on a dime with 35 million borrowers who all have different loan types and statuses.”

President Joe Biden in the East Room of the White House, Aug. 10, 2022, in Washington. Biden is set to announce $10,000 federal student loan cancellation on Aug. 24, for many, extend repayment pause for others. (AP Photo/Evan Vucci)
President Joe Biden arrives to board Marine One at Gordons Pond State Park in Rehoboth Beach, Del., Wednesday, Aug. 24, 2022, to travel back to the White House. (AP Photo/Manuel Balce Ceneta)
President Joe Biden returns a salute to a Marine Corps honor guard as he walks to board Marine One at Gordons Pond in Rehoboth Beach, Del., Wednesday, Aug. 24, 2022, to travel back to the White House. (AP Photo/Manuel Balce Ceneta)