The Biden administration is taking significant steps to alleviate the burden of student loan debt for millions of borrowers, with plans to forgive up to $20,000 in interest charges as early as this fall. The move is part of a broader student debt forgiveness plan aimed at curbing what the administration calls "runaway interest," which has left many borrowers owing more than they originally borrowed despite years of regular payments.
According to the Department of Education, more than 25 million borrowers stand to benefit from the interest forgiveness provision, with 23 million expected to have the entirety of their balance growth wiped out. Under the proposed plan, borrowers whose loan balances are larger than when they first entered repayment would be eligible to have up to $20,000 of that balance growth forgiven.
"We're starting with the interest benefits," James Kvaal, Under Secretary of Education, told CNBC Make It. "And then we're going to implement the remainder of the plan as fast as we can."
Low and middle-income borrowers enrolled in income-driven repayment (IDR) plans, such as the Saving on a Valuable Education (SAVE) plan, could see even more of their balance growth canceled. Single borrowers on an IDR plan who earn $120,000 a year or less, or married couples earning $240,000 or less, would be eligible to have the entirety of their balance growth wiped out.
The accrual of interest on student loans has been a significant factor in the growing student debt crisis. While interest rates on student loans are relatively low, high loan balances, certain payment plans, and periods of forbearance have led to many borrowers seeing their loan balances continue to rise despite making regular payments. Just one year of forbearance on a $30,000 loan with a 6% interest rate would result in $1,800 in interest charges.
In addition to the interest forgiveness plan, the Biden administration announced on Friday that it is using existing student loan forgiveness programs to cancel another $7.4 billion in debt for 277,000 borrowers. This brings the total amount of student loan debt authorized for cancellation under President Biden to $153 billion for nearly 4.3 million people, representing more than 9% of all outstanding federal student loan debt.
The administration's efforts to provide student debt relief have faced criticism from many Republicans, who argue that the cost is being transferred to taxpayers who chose not to go to college or who have already paid for their education. They also claim that Biden is circumventing the Supreme Court, which struck down his signature student loan forgiveness program last year.
Despite the opposition, the Biden administration remains committed to helping student loan borrowers manage their debt. The launch of the SAVE plan last year has already benefited nearly 8 million borrowers, with about 360,000 people seeing their remaining debt canceled due to the plan's terms. The SAVE plan offers the most generous terms for low-income borrowers, with monthly payments cut in half for some when the plan is fully phased in this July.
As the November election approaches, the Biden administration has been actively promoting its student loan forgiveness efforts, making new announcements about debt relief roughly once a month and sending emails directly to eligible borrowers. The administration is also working on a set of new proposals, based on a different legal authority, to deliver relief to certain groups of borrowers, such as those whose student loan balances are bigger than what they initially borrowed.
While the entirety of Biden's student debt forgiveness plan may not be rolled out until 2025, the administration is hoping to initiate the interest forgiveness provision as early as this fall. The move is expected to provide much-needed relief to millions of borrowers who have been struggling with the burden of student loan debt and the accumulation of interest charges.
