Student Loan Cancellation, Biden’s New Debt Forgiveness Plan

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For many Americans, taking out loans is the only way to pay for college. Seeking and obtaining a higher education degree can lead to better opportunities, including higher-paying jobs. However, many traditional loan programs offered in the US can leave graduates paying more than they borrowed. When Biden started his presidential campaign in 2019, he touted his intentions to provide student loan cancellation. On Monday, he announced the next steps his administration is taking to forgive student debt for millions of Americans. 

A report from the Education Data Initiative shows tuition and fees at public four-year colleges have increased by 179% over the last two decades. The government largely funds public colleges, allowing them to charge less for tuition; however, they still have witnessed a yearly tuition rise of roughly 1.5%. 

Private universities often have tuition prices that are more than double that of their public counterparts. Since 1990, private tuition has risen 130%. With both public and private fees steadily rising, the amount taken out in loans quickly follows. 

As of September 2023, Americans collectively owe over $1.7 trillion in student loans. Black graduates owe around $25,000 more in student loans than white borrowers. On average, Black bachelor’s degree holders have $52,000 in debt and make the highest monthly payments toward their loans. 

For students who lack generational wealth, paying back loans can be a losing battle. Some Black borrowers who started college in 1995 still owe 95% of their original debt. The root of the problem lies in egregious interest rates. 

Biden’s New Plan, Interest Rates, and Longtime Loans

In February 2024, the Saving on Valuable Education (SAVE) Plan went into effect. SAVE is an income-driven repayment plan that calculates a borrower’s monthly payment based on income and household size. Additionally, if a borrower makes a complete monthly payment but not the interest rate, the government will cover the rate for them. Those who were lent $12,000 or less can have their full loan forgiven. Over 8 million Americans have applied for SAVE. More than half of the participants have seen their monthly payments drop to $0.

Biden’s latest student loan cancellation initiative tackles several aspects to address the inequalities among the demographics most impacted by debt. 

Interest Rates

If the plan is enacted, it would cancel up to $20,000 of a borrower’s accrued interest rates.  This is expected to positively impact at least 23 million loan borrowers. 

Currently, to receive relief through the SAVE Plan, a borrower must apply. The latest installment would automatically cancel debt for those who are eligible but haven’t yet applied. 

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Longtime Loans

Over 2 million Americans still make payments on student loans they took out two or more decades ago. Under the newest proposal, borrowers with continued debt would qualify for relief on their decades-old loans. Those with only undergraduate debt must have taken out their loan 20 or more years ago. For graduate borrowers, the loan would have to be 25 years or older. 

Colleges that offer degrees with little value can leave graduates no better off than they would have been with only a high school diploma. Graduates who attended institutions no longer qualifying for the federal student loan program could receive full forgiveness for student loans. Likewise, degree holders who attended schools that have since closed will also be eligible. 

A disproportionate rate of Black borrowers attended for-profit schools with less valuable degrees. This left them owing tens of thousands and a shortcoming of job offers to help pay off the accrued debt. 

Those who risk defaulting on their loans or have other financial barriers like medical debt will also benefit. The new plan grants student loan cancellation for Americans who struggle to pay back debt due to other life costs. 

Previous Student Debt Efforts

Before Biden took office, only 7,000 Americans had their college debt expunged. Now the Biden administration has forgiven $62.5 billion worth of student loans for public service workers. More than half a million graduates with a permanent disability have had their loans completely forgiven. 

The administration has also expanded eligibility for Pell Grants. These federal grants are typically reserved for undergraduate students and don’t have to be paid back like a traditional loan.