Dr. Tony Allen is president of Delaware State University, chairman of President Joe Biden’s Board of Advisors on HBCUs and a member of the Economic and Community Advisory Council of the Federal Reserve Bank of Philadelphia.
By Dr. Tony Allen
Last week, President Joe Biden announced the most comprehensive, far-reaching student loan debt-relief plan in American history. In addition to steps the Biden-Harris administration has already taken to provide over $32 billion in loan relief to 1.6 million borrowers, the new plan includes the following:
- Extending the federal student loan pause a final time through Dec. 31, 2022, to provide borrowers a smooth transition back to repayment.
- Providing up to $20,000 in debt cancellation to Pell Grant recipients and up to $10,000 in debt cancellation to non-Pell Grant recipients. Borrowers who currently earn less than $125,000 per year or households currently earning less than $250,000 are eligible. The effort includes current students with loans. Loans must have been originated prior to July 1, 2022.
These actions are expected to help 43 million federal student loan borrowers, with 90% of the relief going to borrowers earning less than $75,000 per year. A great majority of them will be recent college graduates. In his announcement, the president noted that, as a result of this program, the average Black borrower will see his or her balance cut nearly in half, and more than 1 in 4 will see their balance forgiven altogether. Similar projections are noted for Hispanic borrowers.
This is how the president’s action will directly affect the Delaware State University community: Currently, 63% of our undergraduates are fully Pell Grant-eligible, and they graduate with about $52,000 in federal student loan debt. Those students will see a nearly 40% reduction in their student loans. Another 30% of our undergraduates will receive about a 20% reduction in their repayment obligation.
Magnify that impact by the 325,000 currently enrolled undergraduates and hundreds of thousands of recent grads at our 101 sister historically Black colleges and universities around the nation, and you can begin to get a feel for exactly how significant this announcement is: Just over the past 10 years, this totals $15 billion in debt relief for more than 1.1 million HBCU alumni.
The Biden-Harris announcement also initiated a major overhaul of the income-driven repayment option, which has the potential to reduce monthly payments by up to 80% for graduates with a family of four and an annual income of $77,000. It’s worth noting, too, through the Public Service Forgiveness Loan Program, that if you, as a borrower, have worked in public service (federal, state, local, tribal government or nonprofit organization) for 10 years or more, you may be eligible to have all your student debt canceled. You can find more details on that program here.
This news makes Delaware State University even more affordable, especially when you add it to our commitment to the four-year, full-tuition Inspire Scholarship (for any Delaware graduating high school senior with a 2.75 GPA and a commitment to public service); the digital learning initiative (providing all incoming freshmen and transfers with an iPad or MacBook to reduce the cost of instructional materials and promote integrated digital learning); and raising tens of millions of additional scholarship support across a variety of disciplines and interest areas.
The Biden administration’s bold move is a grand accelerator to our efforts. We are truly grateful.
Q&A
Why $10,000 of relief — why not more? And why only for individuals making less than $125,000 and households making less than $250,000?
- These actions advance the president’s vision of growing our economy from the bottom up and the middle out.
- It provides up to $20,000 in relief to Pell Grant recipients and up to $10,000 of relief to other borrowers — wiping away the full debt of 20 million people.
- We expect up to 43 million federal student loan borrowers to receive forgiveness, with the most relief reaching borrowers who need it the most.
- Eligible borrowers — those earning less than $125,000 annually or a household earning less than $250,000 — are most at risk of financial harm once the payment pause ends.
- That’s why the actions are focused on all these borrowers.
How will a borrower know if they qualify for student loan forgiveness?
- Borrowers who earned below $125,000 annually and households earning less than $250,000 will qualify for $10,000 in federal student debt relief.
- Pell Grant recipients under those same income thresholds will qualify for $20,000 of federal student debt relief.
- In the coming weeks, the administration will release more information on how to see if you qualify and how to sign up to receive more information about these changes.
- Go to studentaid.gov to sign up to be notified automatically when this information is available.
Are current students eligible for relief?
- Yes, current students with loans are eligible for relief. Loans must have been originated prior to July 1, 2022.
- Dependent students who were enrolled in school during the last award year qualify if their parents’ household income was under $250,000.
Isn’t this unfair to all those borrowers who paid down their debt, making sacrifices along the way?
- President Biden believes that a post-high school education should be a ticket to the middle class. But for too many people, the cost of college has skyrocketed and student loans remain a lifelong burden.
- Last week’s actions will give more breathing room to America’s working families, as they continue to recover from the strains associated with the COVID-19 pandemic by providing targeted debt relief to those who need it most and making the student loan system more manageable in the future.
- The fact that some students in that situation were able to pay off their debt is a testament to them, but it is no reason to deny relief to others.
- And the American people agree — according to a recent survey, more than half of people who paid off their student loans support debt relief for other borrowers.
Won’t this just be a handout to wealthy doctors and lawyers?
- No. No individual earning more than $125,000 will see their debt canceled.
- Nearly 90% of debt relief will go to individuals making under $75,000 per year.
- President Biden is committed to building our economy from the bottom up and the middle out — these actions will provide critical breathing room for middle-class families, as they continue to recover from the impacts of the pandemic.
What is “income-driven repayment” and what are the changes the administration announced?
- In addition to announcing targeted debt relief for middle-class families, the president announced proposed changes to make the student loan system more manageable for current and future borrowers.
- Currently, there are several repayment plans where borrowers can make monthly payments based on their income level, and if they pay for 20 years, the remaining debt is canceled.
- But there are too many plans and even the most generous plans leave borrowers with too high a payment.
- The administration is proposing changes that cap the amount that borrowers would pay monthly for undergraduate loans at 5% of their income.
- These changes will be transformative for current and future borrowers. The typical borrower will pay $1,000 a year less. Undergraduate borrowers will see their monthly payments cut in half.
- Here’s one example — under this proposal, a typical nurse with an undergraduate loan making $77,000 per year, married with two kids, would pay only $61 per month, compared to $295 per month under the current income-driven repayment plan.
What does a borrower need to do to receive forgiveness?
- The Department of Education will release more information in the coming weeks about how borrowers can sign up to receive debt relief.
- Some borrowers may be eligible to receive relief automatically because the department already has access to information about their income during the pandemic.
- But other borrowers may have to fill out a very short form.
- Go to studentaid.gov to sign up to be notified automatically when this information is available.
How many borrowers will this impact?
- We project that up to roughly 43 million federal student loan borrowers (or 95% of all federal student loan borrowers) will be eligible to receive loan forgiveness, and of those, 20 million are eligible to have their debt completely canceled.
- That’s assuming all those who are eligible for relief take steps to get it.
- Borrowers in the top 5% of incomes will not be eligible for relief, and nearly 90% of relief dollars will go to those making under $75,000 a year.
Won’t colleges just raise tuition now, knowing that taxpayers will end up shouldering the burden for bigger loans?
- The president believes strongly in imposing accountability on colleges raising costs without delivering additional value to students.
- Already, his administration has taken steps to increase accountability, including reinstating an enforcement office at the Education Department; terminating a college accreditor that had previously allowed colleges that defrauded borrowers, like ITT and Corinthian, to gain accreditation and get access to federal student loans; beyond that, the department announced \ they would be creating a list of programs that are the worst performers at delivering value for their costs, so that students can make informed decisions on where to go to school.
How will this impact inflation?
- Because we are restarting payments in addition to providing targeted debt relief at roughly the same time, we believe that any inflationary impacts from debt relief will largely be offset by the deflationary impact of restart.
- With different, less conservative assumptions, the impact could well be neutral or deflationary.
What about income-driven repayment? Given its generosity, doesn’t that also add significant extra spending to the mix?
- The new income-driven repayment plan will likely take longer to implement than forgiveness.
- When implemented, the new plan will save signed-up borrowers money relative to what they would be paying on other income-based repayment plans.
- But because we cannot reliably estimate takeup of this plan at this point, we can’t comment on its impact, one way or the other.
How much will this debt cancellation cost?
- What the president announced is a restart of student loan payments, alongside targeted debt relief. In the short term, the impact of the restart will offset the cost of the targeted debt relief.
- In the long term, the fiscal impact of the debt cancellation will be affected by a number of factors, including how many borrowers will take advantage of this relief and the economic benefits that can occur as a result of the targeted debt cancellation. For example, debt relief can lead to more Americans having opportunities to create small businesses, helping grow our economy.
• Ultimately, we won’t have an estimate of the cost of this until the progra
