In a tweet Wednesday morning, Biden said the amount of forgiveness will be higher for low-income borrowers who went to college on Pell Grants. Those who went to college on Pell Grants will receive $20,000 in student loan forgiveness.
Biden added that those with undergraduate federal loans can also cap their payment at 5% of their monthly income.
The President will speak at 2:15 p.m. ET to formally announce the plan.
Biden has been facing political pressure from the left to broadly cancel student loan debt since taking office.
Unintended consequences
While student debt cancellation could deliver financial relief to millions of Americans, it would shift the cost to Uncle Sam.
Student loan cancellation also could increase inflation — though many experts say the effect would be modest, because borrowers generally pay back their student loans over time. They wouldn’t receive a lump sum of money if some of their debt is canceled. They would instead be required to pay less money each month toward their student loan payments.
“The inflationary impact its certainly positive, but I don’t think it would be much. We’re talking about a pretty small impact,” said Kent Smetters, faculty director of the Penn Wharton Budget Model.
Marc Goldwein, the senior vice president and senior policy director for the Committee for a Responsible Federal Budget — a nonpartisan group that tracks federal spending — argued against the plan in an interview with CNN’s Poppy Harlow on “Newsroom” Tuesday morning.
He believes that canceling $10,000 of debt for each borrower will likely increase inflation, undermine the stated goal of Democrats’ Inflation Reduction Act and will not significantly decrease the racial wealth gap.
“The Inflation Reduction Act saves maybe $300 billion dollars in the first 10 years. If we cancel $10,000 of debt and just extend the pause a few months, we’re going to be at about that much in terms of new cost,” he said. “All the deficit reduction will be wiped out. At the same time, we’re probably going to do more to increase inflation from debt cancellation than any inflation reduction from the Inflation Reduction Act.”
It’s also not easy to target loan forgiveness to those who need it the most and exclude borrowers with higher salaries. An income threshold that cuts off borrowers who earn more than $125,000 a year could help make sure a bigger proportion of the relief goes to low-income borrowers. But some doctors and lawyers, who will eventually be making high incomes, may also reap the benefits.
The Penn Wharton Budget Model also breaks down the share of forgiven debt by income group assuming that $10,000 is canceled for borrowers earning less than $125,000 per year and households earning less than $250,000.
It found that one-third of the canceled dollars would go to households who earn less than $50,795 a year. A little more than half of the debt relief would go to those earning between $50,795 and $141,096.
Roughly 14% of the canceled dollars would go to households earning more than $141,096 a year.
Biden has already canceled billions of dollars in student loan debt
This is a breaking story and will be updated.
George is Digismak’s reported cum editor with 13 years of experience in Journalism