When the Supreme Court struck down President Joe Biden’s original student loan forgiveness plan, it disappointed nearly 40 million Americans with high hopes for financial relief.
As of August 2023, the total student loan debt in the United States stands at an astounding $1.766 trillion, according to The Education Data Initiative.
The Biden administration is taking a different approach to alleviate the student loan burden. However, experts caution that borrowers should prepare for a plan with narrower eligibility.
Given the legal hurdles and opposition to widespread debt forgiveness, President Biden’s Plan B for relief is expected to have a limited reach, prompting concerns from experts.
New Student Loan Relief Plan to Benefit Less Than 10% of Borrowers
Higher education specialist Mark Kantrowitz estimated that less than 10% of federal student loan borrowers will qualify under this new plan.
In contrast, the initial proposal from the Biden administration, introduced in August 2022, aimed to clear or reduce balances for over 90% of borrowers.
The plan excluded only those with individual incomes over $125,000 or combined incomes over $250,000 for married couples.
The Biden administration has faced significant criticism for scaling down its plans, with many advocates urging the president to confront his legal opponents to achieve more widespread student loan cancellation.
During his campaign, Biden promised to cancel a minimum of $10,000 of student debt per person, and the original plan sought to fulfill this promise while also balancing an additional $10,000 for those who received at least one federal Pell Grant during their college years.
Astra Taylor, co-founder of the Debt Collective, a union for debtors, expressed the sentiment of many by saying, “Anything less than what Biden promised will be felt as a letdown, even a betrayal.”
While the new plan may not meet the expectations of many borrowers, there are still some groups that could stand to benefit:
- Borrowers with Balances Greater Than Their Initial Loans: This group includes individuals whose federal student loan balances have grown to two or three times their original loan amount due to accruing interest. Many in this group have struggled with monthly bills that barely cover the interest payment, let alone make a dent in the principal amount.
- Borrowers with Decades of Loan Repayments: The Education Department is considering providing relief to borrowers repaying their loans for an extended period. It needs to be made clear who this category encompasses, but around 2.7 million borrowers aged 62 and older collectively owe approximately $115 billion in student debt, as estimated by Kantrowitz.
- Borrowers Defrauded by Private Universities: Those who attended college programs that did not offer educational or financial value are being considered for relief. This has been a focal point for the Biden administration, which has already forgiven around $22 billion in student debt for this group.
- Eligible Borrowers Who Haven’t Applied: The Biden administration aims to target individuals who are eligible for student loan debt relief under existing government programs but have yet to apply. This includes beneficiaries of specific income-driven repayment plans and the Public Service Loan Forgiveness (PSLF) program.
- Borrowers in Financial Hardship: The administration also has its sights on providing student loan forgiveness for those facing financial hardship, hoping that this approach will face fewer legal challenges.
As the Biden administration works to roll out its new plan for student loan relief, borrowers across these groups are hopeful that they will see some respite from the financial burdens of their education debt.
Nevertheless, the broader debate surrounding student loan forgiveness continues, with many advocates pushing for more comprehensive solutions to address the growing student loan debt crisis in the United States.
Source: Go Banking Rates