President Biden’s Plan for Student Loan Forgiveness

This article was originally published on October 19th, 2022. Since its publishing, there have been updates to the Student Loan Forgiveness Plan.

According to the White House, 45 million Americans have student debt.

Forty-five million is a staggering number, and many Americans still hold student debt late into their 30s and beyond. President Joe Biden’s student loan forgiveness plan is to give borrowers $10,000 per year to those making less than $125,000 or $250,000 for couples. As well as cancel up to $20,00 for Pell Grant recipients. This plan will certainly make a big difference when it comes to America’s debt, which is at a staggering $1.6 trillion as of September 2022. This debt is like a looming cloud over the American public. President Biden’s plan to help ease the stranglehold of debt on many people's pocketbooks could significantly impact the economy at large.

The White House Perspective

The White House has released some insightful information on the student debt crisis. Around 20 million borrowers’ debt would be completely canceled with his proposed plan, wiping out almost half of those currently in student debt troubles. Also, this debt cancellation will affect those most in need. Around 90% of the debt cancellation benefits will be to those earning less than $75,000 a year in annual income.

President Biden released this statement on his Twitter,

In keeping with my campaign promise, my Administration is announcing a plan to give working and middle-class families breathing room as they prepare to resume federal student loan payments in January 2023.

— President Joe Biden, The White House, USA

Source: POTUS Twitter Account

There are certainly many questions to be answered. What will eventually be the impact of all this? When will this be taking effect? And what is happening with the current state of student loans in the meantime? The last question may be the simplest to answer in Biden’s proposed plan that includes extending the payment pause for most federal student loans through Dec. 31, 2022. With this extension, people can allocate resources to other payments until the inevitable un-pause.

Economic Impact of Debt Reduction

Many will speculate on its eventual outcome to what will be in the impact. What we do know is that it will certainly have ripple effects on the economy as a whole. The most significant impact will be on low- to middle-class borrowers, which is close to 80% of the US population in 2021. So, the greatest share of the population will regain some of their purchasing power, which could give a jolt of energy back into the economy and the market, possibly in time for the holiday season when the is generally a market upswing.

This talk of student debt is exacerbated by the recent high inflation. In July 2022, inflation in the US peaked at 9.1% overall and much higher in many other categories. In one such category, the inflation for food was 11.4%, the most since 1979! Americans are just looking to have their basic needs met, but rising inflation and a high amount of student debt it is making that very difficult. A plan to help put US citizens' minds at ease would be a significant step in the right direction. Senate Majority Leader Charles E. Schumer said in a statement,

With the flick of a pen, President Biden has taken a giant step forward in addressing the student debt crisis.

— Charles “Chuck” Schumer, Senate Majority Leader

Whichever side of the aisle you’re on, Biden's plan will shake up the status quo. There has been a huge problem with student debt, and making a change is much needed. The average American is over $90,000 in debt, and those with a college degree, on average, owe 71% more than those with just high school diplomas. As a country, we should encourage those to become more educated and contribute to society, but student loans can be highly discouraging to many with our current structure. Hopefully, President Biden’s new proposed plan will have the needed impact.

Want to read more about student loans? Check out this recent article: Are Your Student Loans Causing You to Put Your Life and Savings on Pause?

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