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Biden’s student loan debt plan injects more uncertainty into midterm elections

Student loan debt holders demonstrated outside the White House last month to demand that President Biden cancel student loan debt.Jemal Countess/Getty Images for We, The 45 Million

WASHINGTON — President Biden said Wednesday that he will cancel up to $10,000 in federal student loan debt for tens of millions of borrowers and an additional $10,000 for people who had the greatest need for college financial aid, fulfilling a controversial campaign promise that some Democrats hope will boost them with young voters ahead of the congressional midterm elections.

The loan forgiveness would apply to people making up to $125,000 a year, or households with less than $250,000 in annual income, with the extra $10,000 in relief going to people who received federal Pell Grants. Biden also announced an expansion of a federal program that will limit monthly payments to 5 percent of a borrower’s discretionary income — half the current cap — and allow some low-income borrowers to avoid payments altogether.


In addition, Biden set a final extension, to Dec. 31, of an existing pause on federal student debt repayments that was due to expire at the end of the month. The moratorium, which also halted interest accrual on the loans, was put in place by Congress at the start of the pandemic to provide relief to borrowers who already were struggling to keep up with payments on what Biden called “unsustainable debt.”

“All this means that people can start to finally crawl out from under that mountain of debt and get on top of their rent, their utilities, to finally think about buying a home or starting a family or starting a business,” Biden said of the initiatives. “And by the way, when this happens, the whole economy is better off.”

Biden said the plan targets low- and middle-income borrowers, with nearly 90 percent of the student loan relief going to people earning less than $75,000 a year. About 20 million borrowers will have their entire student debt canceled. Private student loans aren’t eligible for cancelation.


Biden’s decision has been long-awaited, and pressure had built on him to make good on his campaign pledge on an issue important to many younger voters as the midterms approach. But canceling student debt is unpopular with some other voter groups, leaving Democrats at risk of losing some of their newly found momentum after a string of legislative successes and encouraging performances in special House races in recent weeks.

Biden’s decision falls short of the $50,000 in forgiveness per student that progressives have called for, making its galvanizing effects on liberal voters less certain.

At the same time, some experts have warned that canceling student debt could increase inflation — a major political liability facing Democrats. Although that impact is unlikely to happen in the near term, the charge could blunt Democrats’ effort to tout their steps to ease high inflation, including longer-term measures on prescription drug costs and deficit reduction in the recently enacted Inflation Reduction Act.

The amount of student debt has skyrocketed in recent years as the cost of higher education has risen, with the burden falling heavily on people of color. Forgiving some of the estimated $1.6 trillion in outstanding student debt owed by about 43 million borrowers has become a major cause of progressive Democrats, including Senator Elizabeth Warren and Representative Ayanna Pressley of Massachusetts, who have urged Biden to cancel up to $50,000 in debt for each borrower.

But Warren, who pushed for debt cancellation when she ran against Biden for the 2020 Democratic presidential nomination, was not disappointed, calling the moment “a day of joy and relief” that will help narrow the racial wealth gap.


“The bottom line is this: Millions of working people will have a chance to build a more secure economic future because of President Biden’s decision to cancel student debt,” she said in a statement. “This victory happened because thousands of Americans organized and voted for real action to improve people’s lives.”

Biden campaigned on a more modest proposal to cancel $10,000 in debt and has said he preferred Congress pass legislation doing so. But lawmakers have not acted and many Democrats have asserted he has the authority to forgive the debt by executive action, although there could be legal challenges.

His move Wednesday comes amid a debate about the fairness of forgiving student debt for some borrowers while others have had to repay all their loans and many Americans have not even had the opportunity to attend college. Republicans have branded any student loan debt forgiveness a bailout paid for working class Americans that amounts to a “handout to the rich.”

“We should not be forgiving student loans. People knew what they were doing when they signed up and they should pay it off,” said Jim Lyons, chair of the Massachusetts Republican Party. “This is more of the policies of the radical left and I think it’s wrong.”

A national poll by the Institute of Politics at Harvard Kennedy School released in April found that 85 percent of Americans 18 to 29 years old supported some form of government relief on student loan debt, but only 38 percent favored canceling all student debt. Biden’s job approval with those voters was 41 percent, down 18 percentage points from a year earlier.


A CNBC poll of adults of any age released Monday found split opinions. About a third of respondents — 32 percent — said all loans should be forgiven, 34 percent said loans should only be forgiven for people in need, and 30 percent said there should be no forgiveness. Student loan borrowers and Democrats were much more supportive of forgiveness than Republicans.

But that poll showed consensus on one point: 59 percent said they were concerned student loan forgiveness will make inflation worse. Some economists, most notably former Treasury secretary Lawrence Summers, agree.

“Student loan debt relief is spending that raises demand and increases inflation,” Summers wrote on Twitter on Monday. “It consumes resources that could be better used helping those who did not, for whatever reason, have the chance to attend college.” Summers, a former Harvard economist, said that if the federal government provides any relief, it should “only be given for the first few thousand dollars of debt, and for those with genuinely middle class incomes.”

The Committee for a Responsible Federal Budget, a nonpartisan Washington think tank, said this month that extending the existing repayment pause through the end of the year and canceling $10,000 in student debt for households making less than $300,000 would increase inflation and cost the federal government about $250 billion. That would wipe out nearly 10 years worth of deficit reduction contained in the Inflation Reduction Act.


“Broad student debt cancellation – whether by extending the pause, forgiving balances, or both — would undermine the benefits of the IRA and demonstrate a lack of seriousness in addressing our nation’s economic challenges,” the organization said.

But a senior administration official, who declined to be named, said White House officials believed that the student debt cancellation will be largely offset by the restart of loan payments on Jan. 1. The official pointed to other analyses, including one by the liberal Roosevelt Institute think tank, that said inflation fears were unfounded because the debt forgiveness would be spread over the life of the loans, amounting to only about $13 billion a year for decades. The move would increase Americans’ wealth, particularly for Black borrowers “because Black students have a greater likelihood of taking on debt to attend college and borrow more to cover college expenses when compared to white students.”

The average student loan debt balance due nationwide is $37,667, according to the Education Data Initiative, a private group that compiles statistics about the US education system. The average debt for students who graduated in 2020 was $30,000, up from about $19,000 in 2002. Outstanding federal student loan debt accounts for about 93 percentof all student debt, which also includes private loans.

The Biden administration already has approved $32 billion in federal student loan debt forgiveness for more than 1.6 million borrowers, such as those who were students of for-profit chains that closed or participated in a program that provides forgiveness for people who work in public service, according to the Education Department.

Samantha Gross of the Globe staff contributed to this report.

Jim Puzzanghera can be reached at jim.puzzanghera@globe.com. Follow him @JimPuzzanghera.