Biden to cancel up to $10,000 student loans for millions of Americans

President Joe Biden said on Wednesday that the U.S. government will forgive $10,000 in student loans for many debt-saddled college-goers, a move that could boost support for his fellow Democrats in the November congressional elections but also may fuel inflation.

Canceling the debt will free up hundreds of billions of dollars for new consumer spending that could be aimed at homebuying, adding a new wrinkle to the country’s inflation fight, according to economists.

“Earning a college degree or certificate should give every person in America a leg up in securing a bright future. But for too many people, student loan debt has hindered their ability to achieve their dreams – including buying a home, starting a business, or providing for their family,” Education Secretary Miguel Cardona said in a statement.

The White House said the country’s “skyrocketing cumulative federal student loan debt – $1.6 trillion and rising for more than 45 million borrowers – is a significant burden on America’s middle class.”

Biden is expected to speak on the matter later on Wednesday at the White House.

Graduating students stand during Harvard University’s 371st Commencement Exercises in Cambridge, Massachusetts, U.S., May 26, 2022. REUTERS/Brian Snyder

Many Democrats had pushed for Biden to forgive as much as $50,000 per borrower but cheered his action. Republicans argue the move will disproportionately help people earning higher incomes. Republicans are seeking to regain control of Congress in the November elections.

U.S. consumers carry a massive $1.75 trillion in student loan debt, most of it held by the federal government, the result of university tuition fees substantially higher than in most other rich countries.

Biden’s administration will extend a COVID-19 pandemic-linked pause on student loan repayment through to the end of the year while forgiving $10,000 in student debt for borrowers whose income falls below $125,000 a year, or $250,000 for a married couple, the White House said. The forgiveness could impact 8 million borrowers automatically, the Department of Education said, while others would need to apply for forgiveness.

The government is also forgiving up to $20,000 in debt for recipients of federal Pell Grants, some 6 million students from low-income families, and is proposing a new rule that protects some income from repayment plans and forgives some loan balances after 10 years of repayment, the Education Department said.

Cutting $10,000 in federal debt for every student would amount to $321 billion of federal student loans and eliminate the entire balance for 11.8 million borrowers, or 31% of them, a New York Federal Reserve study shows.

Borrower balances have been frozen since the beginning of the COVID-19 outbreak, with no payments required on most federal student loans since March 2020.