The new moves also, Biden said, help fix the student loan program going forward, with changes to income-based repayment plans. Payments for those will be capped at 5% of income rather than 10% while raising the amount of income considered non-discretionary, “guaranteeing that no borrower earning under 225% of the federal poverty level—about the annual equivalent of a $15 minimum wage for a single borrower—will have to make a monthly payment,” according to a federal student loan fact sheet. In a key move, the changes to the income-based repayment will also “cover the borrower’s unpaid monthly interest, so that unlike other existing income-driven repayment plans, no borrower's loan balance will grow as long as they make their monthly payments—even when that monthly payment is $0 because their income is low.”
The income cap on the debt relief will provide a significant administrative hurdle, forcing tens of millions of people to apply. The Education Department has income information for not quite 8 million of the 43 million people eligible.
The $10,000 in universal relief that had previously been floated would have cleared one in three borrowers of student debt—but it would have had a seriously disproportionate impact, since Black borrowers have an average of $25,000 more in student debt than white borrowers. Entering college burdened by a racial wealth gap built on generations of policy that favored white people and disadvantaged Black people—including redlining, mass incarceration, education and job discrimination, Jim Crow, slavery, and the failure to pay reparations—Black students are more likely to have to take on student loans to attend college and borrowers graduate with $7,400 more in debt than white borrowers, a number that increases quickly. Black borrowers are also more heavily impacted by debt for graduate school.
$10,000 in debt relief, therefore, would have disproportionately helped white people while leaving Black people behind, again. That’s where the up to $20,000 in relief for Pell Grant recipients comes in. In 2015-2016, 31.5% of white students had a Pell grant, compared with 57.7% of Black students and 46.9% of Hispanic students. Black students also make up 22.7% of Pell recipients overall. These are people who had to prove “exceptional financial need” to get the Pell Grant to begin with, so claims that this assistance is going to people who don’t need it are shot down right off the bat. Not that that will stop Republicans from trying.
“This will bring real relief to 43 million people and is a MASSIVE step in the right direction,” Rep. Pramila Jayapal, chair of the Congressional Progressive Caucus, tweeted.
“It’s great to see the president take action to forgive the crushing debt burdens of borrowers from the most disadvantaged backgrounds,” Lindsay Owens, executive director of the Groundwork Collaborative, told the Post.
A recent poll shows 55% support for canceling debt up to $10,000, with even stronger support among people aged 18 to 44 and Black and Hispanic people.
While nothing will stop Republicans and the rest of the I-got-mine-so-screw-you crowd from insisting that this is a terrible handout that will increase inflation, Mike Konczal pointed to a study on the results of student loan cancellation through court judgments. Authors Marco Di Maggio, Ankit Kalda, and Vincent Yao found that canceling student debt had a range of positive effects in the lives of borrowers, whose total debt balance excluding the student loans declined substantially in the wake of getting relief on their student loans. They were also less likely to be delinquent in payments on other accounts, less likely to file for bankruptcy, less likely to default on medical bills, and less likely to experience foreclosure. Not only that, they were more likely to move to another state or change jobs, and their income rose by $3,000. Lifting the burden of student debt allowed people to take chances, make positive changes, and start to get ahead. We could be about to see that on a mass scale.
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