President Biden responded to pressure from progressives on Wednesday by canceling $10,000 in student debt for borrowers who earn less than $125,000 per year and $20,000 in debt for those who received Pell Grants.
Mr. Biden has also extended the pause on federal student loan payments through December, the White House announced.
The president’s move is widely expected to spur legal challenges to his authority to cancel student loan debt for millions of Americans. More than 43 million Americans hold federal student debt, with an average balance of $37,667, according to federal figures.
Administration officials expect up to 20 million people to have their student debt completely forgiven under the plan.
More than $124 billion, or approximately 8%, of student debt is in default, according to a December report by the Education Data Initiative. An average of 15% of student loans are in default at any given time, and more than 1 million student loans enter default each year.
Mr. Biden said the widespread relief will reverberate across the entire economy.
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“All this means people can start [to] finally crawl out from under that mountain of debt, to get on top of their rent and utilities, to finally think about buying a home or starting a family or starting a business,” Mr. Biden said. “And by the way, when this happens, the whole economy is better off.”
Mr. Biden has teased his plan to forgive student loan debt for months, after promising relief on the campaign trail. The announcement, which is certain to attract attention from young voters, comes as Democrats eye a challenging midterm election cycle.
The White House said the plan will level the playing field for those saddled with insurmountable debt and ease the racial wage gap by offering extra relief for Pell Grant borrowers, who are more than twice as likely to be black.
Mr. Biden‘s plan also calls for capping monthly payments on outstanding undergraduate loans at 5% of discretionary income, down from the current 10%. It forgives loan balances after 10 years of payments, instead of 20 years, for original loan balances of $12,000 or less.
Many liberal activists cheered the action. MoveOn Executive Director Rahna Epting called it “the biggest and boldest action a president has ever taken to provide student debt relief to struggling families.”
Critics said Mr. Biden lacks the authority to take the action, and that it will increase federal deficits and worsen inflation.
Progressive Democrats, including Sen. Elizabeth Warren of Massachusetts, argue that the Higher Education Act of 1965 empowers the president to modify or forgive student debt. Others have argued that legislation doesn’t explicitly state that a president can enact large-scale debt forgiveness, adding that if Congress intended to give a president that power, it would have said so.
Mr. Biden‘s opponents, and some Democrats, have argued that student loan cancellation is a form of government spending and Congress, not the executive branch, controls the government’s wallet.
“People think the president of the United States has the power for debt forgiveness. He does not. He can postpone. He can delay. But he does not have that power. That has to be an act of Congress,” House Speaker Nancy Pelosi, California Democrat, said last month.
However, it is unclear who would have standing to challenge Mr. Biden‘s legal authority. Since states have no control over federal student loan spending, they wouldn’t be able to pursue a successful lawsuit.
An April article in the Virginia Law Review concluded that states have “no plausible argument that federal debt cancellation would interfere with their sovereign powers.”
Dalié Jiménez, director of the Student Loan Law Initiative at the University of California, Irvine, said the president’s authority to forgive student loans has never faced legal scrutiny so it’s unclear how a court would rule.
She noted that the Education Department said Mr. Biden is authorized to forgive student loans under a law passed following the Sept. 11, 2001, terror attacks that empowers presidents to grant student loan relief under periods of war or other national emergencies.
Secretary of Education Michael Cardona invoked the COVID-19 pandemic in his memo outlining the administration’s authority to cancel student debt. That same authority was invoked by the Trump administration when it paused student debt repayment during the height of the pandemic.
“If a court were to say there was no basis for this, then there was no basis to do the pause,” Ms. Jimenez said. “The pause has been in effect for almost three years. Would a court be willing to unwind all that interest that had been forgiven on a monthly basis since the pause? I don’t think anyone would want that.”
Ms. Jimenez predicts legal challenges are unlikely because states, taxpayers and members of Congress lack the standing to challenge Mr. Biden‘s actions.
During a conference call Wednesday to discuss Mr. Biden‘s student loan plan, a senior administration official sidestepped questions about legal challenges by saying the official was “not a lawyer.”
The plan will also face stiff backlash from Republicans who have consistently bashed Democrats for spending that they say is out of control and a key driver behind inflation. Opponents also say the plan offers an unfair advantage over those who have repaid their debt or who chose not to go to college.
“Washington Democrats have found yet another way to make inflation even worse, reward far-left activists, and achieve nothing for millions of working American families who can barely tread water,” Senate Minority Leader Mitch McConnell, Kentucky Republican, said Wednesday.
“President Biden‘s student loan socialism is a slap in the face to every family who sacrificed to save for college, every graduate who paid their debt, and every American who chose a certain career path or volunteered to serve in our Armed Forces in order to avoid taking on debt,” he said. “This policy is astonishingly unfair.
Bipartisan advocacy groups and a few Democrats have also said it will drive inflation.
“Student loan debt relief is spending that raises demand and increases inflation,” tweeted Lawrence Summers, who served as President Clinton’s Treasury secretary. “It consumes resources that could be better used helping those who did not, for whatever reason, have the chance to attend college. It will also tend to be inflationary by raising tuitions.”
The Committee for a Responsible Budget, a bipartisan think tank focused on federal budget issues, concluded debt cancellation would boost near-term inflation far more than they predict Mr. Biden‘s recently-passed climate, tax and health care bill will lower it. It said Mr. Biden‘s plan would undermine his bill’s benefits and demonstrates “a lack of seriousness in addressing our nation’s economic challenges.”
“Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless,” tweeted Jason Furman, who served as an economic adviser to President Obama. “Doing it while going well beyond one campaign promise ($10K of student loan relief) and breaking another (all proposals paid for) is even worse.”
A CNBC survey released Monday concluded that 59% of Americans are concerned that student loan forgiveness will make inflation worse. The same survey also found that 30% of all adults said there should be no student loan forgiveness for anyone.
A study by the Penn-Wharton Budget Model published Tuesday found that the plan would cost the federal government $329.7 billion in lost revenues over 10 years and that the majority of the relief would go to borrowers in the top 60% of earners.
“President Biden didn’t ‘forgive student debt,’ he chose to shift the burden of the well-off onto the backs of the 87% of Americans who chose to not go to college, already paid off their loans, or saved to not take them out in the first place,” said Sen. Bill Cassidy, Louisiana Republican. “This is spending at least $300 billion we do not have which will make inflation worse. It does nothing to get at the root problem of the high price of education while costing $2,000 per taxpayer.”
The White House has strongly pushed back on claims that debt forgiveness will increase inflation. Officials argue that by targeting relief to those earning less than $125,000 a year or households earning less than $250,000, it will mean that 90% of the relief will go to households earning less than $75,000 a year.
But the cost to the federal government associated with canceling the debt, according to deficit hawks, will wipe out much of the deficit reduction from Democrats’ $740 billion climate-and-tax law known as the “Inflation Reduction Act,” which proponents said would reduce deficits by $273 billion over the next decade.
Others have slammed Mr. Biden for not going far enough on student debt.
Mr. Biden has faced persistent pressure from progressives to cancel $50,000 of student debt or more per borrower.
On Tuesday, the NAACP blasted Mr. Biden ahead of his expected announcement for not canceling enough debt.
“If the rumors are true, we’ve got a problem. And tragically, we’ve experienced this so many times before,” NAACP President Derrick Johnson said in a statement. “This is not how you treat Black voters who turned out in record numbers and provided 90% of their vote to once again save democracy in 2020.”
Mr. Biden responded to critics on Wednesday, saying his administration is “taking an economically responsible course.”
“I understand not everything I’m announcing today is going to make everybody happy,” Mr. Biden said during a White House address. “But I believe my plan is responsible and fair. It focuses the benefit on middle class and working families. And it will fix a badly broken system.”
He also said that the cost of canceling debt will be offset by resuming loan repayments that have been paused during the pandemic.
“About $50 billion [per] year will start coming back into the Treasury because the resumption of debt,” he said. “Independent experts agree that these actions taken together will provide real benefits for families without meaningful effect on inflation.”
“The outrage over helping working people with student loans, I think he’s just simply wrong,” he said. “Dead wrong.”
• Dave Boyer contributed to this story.
• Joseph Clark can be reached at jclark@washingtontimes.com.
• Jeff Mordock can be reached at jmordock@washingtontimes.com.
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