Following President Joe Biden’s eagerly anticipated statement regarding student loan forgiveness on Wednesday afternoon, millions of Americans will have their student debt forgiven or reduced.

The Biden administration will forgive approximately $10,000 in federal education loans for individuals earning less than $125,000 or $250,000 annually for married couples or the head of a household. Pell Grant recipients will also be eligible for up to $20,000 in forgiveness. The plan excludes holders of private loans.

Biden announced broad forgiveness of student debt of up to $20,000.

To erase $10,000 in federal Debt from student loans for borrowers making just under $125,000 per annum (or $250,000 each year if they are already married), Biden said he would use executive action to establish the program. There has never been a similar student loan cancellation program put into place.

According to the Center for American Progress, 16 million borrowers would have their college debt forgiven if they received a $10,000 loan cancellation. Through this effort, about one in three borrowers of student loans would have all of their Debt forgiven.

Additional assistance for Pell Grant beneficiaries is also included in Biden’s presentation. Lower-income students who get Pell Grants receive government financial aid that is not required to be repaid. Borrowers of federal student loans who get Pell Grants as a component of their program of financial assistance and who earn less than $125,000 annually (or $250,000 annually if they are married) may be eligible for up to $20,000 in government student debt forgiveness.

President Biden posted a tweet on Wednesday saying, “By my campaign pledge, my administration is proposing a proposal to allow working and middle-class households breathing room as they prepare to restart payments on federal student loans in January 2023.” He promised to provide more information later today.

James Kvaal, the undersecretary of education, tweeted, “I’m delighted by [Education Secretary Miguel Cardona] & [President Biden] for today’s extraordinary action to make 43 million people qualified for debt forgiveness, including 20 million whose loans will be fully wiped off.”

Throughout his 2020 presidential campaign, Biden argued in favor of sweeping student loan cancellation, saying he would support a proposal to grant each borrower $10,000 in loan forgiveness. In addition, Biden ran his campaign on a pledge to forgive federal student loans for undergraduate tuition debtors who attended public universities or HBCUs.

However, since accepting the position, Biden has hesitated to utilize executive action to carry out his campaign pledges and has questioned whether he is legally permitted to do so. According to White House officials who repeatedly threw the ball to Congress, Biden would sign a bill forgiving student loans.

When it became clear that no corresponding bill would be introduced, Biden showed a greater willingness to consider an executive order to forgive student loans. However, despite pressure from progressive groups as well as some Democrats in Congress, he refused to waive $50,000 or more in Debt from student loans. After debating the issue for more than 18 months, Biden decided on a lower number and income limitations.

If Biden extends the year-end student loan moratorium

Biden stated that he would also implement widespread student loan forgiveness and extend the current student loan freeze until December 31. The moratorium, which has prevented any payments or interest accrual on federal student loans held by the government since March 2020, was supposed to terminate on August 31. As stated by the White House, this could be the last time the pause is extended.

Student loan servicers and organizations that represent borrowers have harshly criticized the Biden administration for delaying the granting of an extension until the very last minute. With so little time left, the student debt pause has never been previously extended.

However, a continuation of the student loan moratorium was widely anticipated because Education Department officials had already assured borrowers that they would be given plenty of notice before payments started again. Payments would restart in January with the early warning to borrowers and servicers.

A new income-driven repayment plan will soon be made public by the Biden administration, reducing payments for undergraduate federal student loan borrowers by at least 50% from current programs.

Concerns about inflation

Before the proposed plan was made public, Larry Summers, a previous Treasury Secretary who was President Barack Obama’s director of the National Economic Council, believed that relief would cause inflation.

Summers wrote on Tuesday, adding later, “Debt on student loan relief is going to be spent, raising requirements and increasing inflation. I expect the administration will not promote microeconomic inflation by inspiring college tuition hikes or macroeconomic inflation by providing excessively generous student loan relief. It uses up resources that may be better used to assist people who, for whatever reason, were denied the opportunity to enroll in college. Increasing tuition will also tend to cause inflation. “

Plans to forgive $10,000 of Debt for every student loan recipient will probably boost inflation, defeat the Democrats’ Inflation Reduction Act’s declared purpose, and not appreciably narrow the wealth gap between races. Furman argued that it would be foolish to add a half trillion dollars’ worth of gasoline to the already-burning inflationary fire.

Perhaps $300 billion will be saved by the Inflationary Reduction Act in the first ten years. We will incur roughly that amount in new costs if we eliminate $10,000 in Debt and prolong the pause by a few months. The entire deficit reduction effort will be lost. However, we will probably increase inflation more as a result of debt cancellation than we will increase it as a result of the Inflationary Reduction Act.

Additionally, it can be challenging to eliminate borrowers with higher incomes while still giving debt forgiveness to those who require it the most. Making sure that a more considerable amount of assistance reaches low-income borrowers might be achieved by establishing an income barrier that excludes borrowers who make more than $125,000 annually. However, certain lawyers and doctors who may eventually earn big salaries might also gain.

The Penn Wharton Reference Model also lists the percentage of Debt forgiven by income category, presuming that $10,000 is waived for debtors and households making less than $125,000 annually and $200,000 overall.

Political coercion

Since becoming office, Biden has been under political coercion from the left to forgive student loan debt generally. Senators from Massachusetts, Elizabeth Warren, and Chuck Schumer, the Senate mainstream leader, counseled Biden to extract the $50,000 per debtor request. Before the predicted announcement on Tuesday, the President spoke with Schumer, Warren, and Democratic Sen. Raphael Warnock of Georgia. In a joint declaration, Schumer and Warren acclaimed the optimal as “a huge step forward in solving the student loan crisis.”

They said, “This is the only most operative step the President can take all on his own to upkeep working families and the economy. The beneficial effects of this measure will be felt by households across the nation, especially in minority communities. “

Derrick Johnson, the President of the NAACP, said earlier this week that the reported features of Biden’s plan were insufficient and did not reflect how black voters should be treated. On Wednesday, a high-ranking administration official said the relief would help close the racial wealth disparity. Additionally, Biden noted in his speech that black and Hispanic debtors, who typically have fewer family resources to pay for it, bear a disproportionately large student debt load.

Biden has repeatedly resisted eliminating that much, claiming he would be in favor of erasing $10,000 for debtors with incomes below a particular limit. On the campaign trail, Biden advocated for canceling all undergrad degree college fees related to federal school loans from two- and four-year public universities and colleges for borrowers making up to $125,000 per year, as well as forgiving a lower limit of $10,000 in student loan debt per person right away as a response to the pandemic. However, he also stated that he favored Congress’s acting rather than exercising his administrative authority. Republican senators on the right denounced Biden’s fresh aid proposal. Senate Minority Leader Mitch McConnell called the proposal “yet another strategy to make inflation much worse” and “honor far-left activists.”

Joe Biden, vice president, declared that he would “never apologize for aiding laboring Americans and the middle class—especially not to the same citizens who voted for a $2 trillion reduction in taxes that mostly benefited the wealthiest Americans.” According to Biden, no one protested that the $700 billion in small business loans that were forgiven would increase inflation.

Biden has already forgiven student loan debt totaling billions of dollars.

Biden has since adopted a more focused strategy for student debt alleviation. His efforts have focused on enhancing and streamlining the federal student loan pardoning programs. More than any other government, the Biden administration has so far granted the forgiveness of $32 billion in Debt, primarily for debtors whose for-profit universities were scammed and those who were permanently incapacitated.

In addition, he made adjustments to the income-driven repayment options, helping to bring millions of borrowers closer to debt forgiveness. The Public service loan forgiveness program, which forgives the loans of government and nonprofit employees after ten years of payments, was temporarily expanded under his administration.

However, the programs are challenging and occasionally malfunction. Few people, for instance, have been eligible for amnesty through an income-driven repayment plan, according to the latest Government Accountability Office analysis. By the end of June, 157 loans had all received approval from the Department of Education for forgiveness. Around 7,700 debts that were in repayment at the time might have already qualified for forgiveness.

The government is “proposing long-term modifications” to the PSLF program, according to the statement from the Department of Education. The Department specifically suggested allowing more payments, such as partial, lump-sum, and late payments, to qualify for PSLF and some deferments and forbearances. Including those for Peace Corps and AmeriCorps service, National Guard duty, and service in the military, to count tow