Biden Promises to Forgive Student Debt Up to $20,000. Here’s How It Will Work—and Who’s Eligible

On Wednesday, President Biden announced his three-part student loan relief plan, delivering on his campaign promise to cancel $10,000 of federal student loan debt per person for low to middle-income borrowers. Not only will borrowers who made less than $125,000 during the pandemic be eligible for $10,000 in forgiveness, but those who received Pell Grants in college are eligible to have $20,000 in debt forgiven.

The announcement also extended the pandemic-era student loan payment pause, for the seventh and final time, until Dec. 31.

The plan’s three broad prongs are to provide targeted debt relief in response to financial harm from the pandemic, to make the student loan system more manageable for current and future students and to protect future students and taxpayers by reducing the cost of college and holding schools accountable when they hike up prices.

“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,” Biden wrote on Twitter Wednesday as he announced the plan.

Here’s what we know so far:

Who’s eligible for student loan forgiveness?

Single borrowers whose incomes are under $125,000 a year and married couples who earn less than $250,000 a year are eligible to have $10,000 of federal student loans forgiven. Current students are only eligible if they took out their loans before July 1, 2022.

What if I have more than $10,000 in debt?

Pell Grant recipients, undergraduates who typically have the greatest financial need and compromised more than 33% of all undergraduate students in 2019, would be eligible for an additional $10,000 cancellation in federal loan debt, meaning $20,000 in loan cancellation total.

Progressive Democrats including Sens. Elizabeth Warren and Bernie Sanders have advocated for student loan forgiveness equaling $50,000 or more, but Biden has shot down such amounts.

How will student loan forgiveness work?

The Education Department is set to release information on how to sign up for student loan forgiveness in the coming weeks. Nearly eight million borrowers whose income information the department already has on file will be automatically enrolled in relief, but everyone else will have to fill out an application that will be available by the end of the year.

When will I have to start paying again?

Borrowers whose loans aren’t forgiven or are only partially forgiven should plan to resume loan payments in January. Biden explained that though COVID-19 cases remain elevated, as the economy improves, pandemic-related relief should be phased out responsibly.

Another feature of the loan relief plan is that it caps undergraduate loan payments to 5% of a borrower’s monthly income, as opposed to the previous 10% threshold.

Additionally, the plan forgives loan balances of $12,000 or less after 10 years of payments, instead of the current 20 years. It also fully covers the borrower’s unpaid monthly interest, so that unlike with current income-driven repayment plans, a borrower’s loan balance won’t grow as they are making their required monthly payments.

The student loan relief plan is expected to face harsh legal challenges, but if successfully approved, it could erase federal student debt for about 20 million people and become a basis for middle-class borrowers to begin building wealth, buying homes and saving for retirement.

Could relief be rolled back or canceled?

Alongside the president’s announcement, the Education Department released a legal memorandum outlining the legal justification for an executive order to cancel student debt. The memorandum interprets the Higher Education Relief Opportunities for Students (“HEROES”) Act of 2003 to cover Biden’s plan since the HEROES Act has been used for student loan relief during other periods of national emergency, and hence is appropriate to implement to counter the economic effects of the COVID-19 pandemic.

Despite this, experts predict possible legal battles to overturn the relief. They say that if any legal opposition makes its way to the Supreme Court, the relief plan could be in trouble given the slew of recent SCOTUS rulings that limited executive power and authority of regulatory agencies in the executive branch.

Some have argued that a student loan forgiveness plan backed by Congress would have a stronger legal basis.

“People think that the President of the United States has the power for debt forgiveness. He does not,” House Speaker Nancy Pelosi said at a press event over a year ago. “He can postpone. He can delay. But he does not have that power. That has to be an act of Congress.”

Biden’s student loan plan was met with harsh criticism from conservative lawmakers almost immediately.

“Democrats’ student loan socialism is a slap in the face to working Americans who sacrificed to pay their debt or made different career choices to avoid debt. A wildly unfair redistribution of wealth toward higher-earning people,” Senate Republican leader Mitch McConnell tweeted Wednesday.

Political experts also say that the relief plan comes just before the divisive midterm elections and could be a push for voters in either direction.

With little information yet about how soon eligible borrowers will begin having their loans forgiven, other than by the end of the year, it remains to be seen whether opponents to the plan will seek legal retaliation and if it will cause obstacles.