President Joe Biden’s announcement Wednesday that the federal government would cancel billions in student debt promises relief for millions of Americans. While not as rich as some proponents wanted, the package is a costly and generous lift that offers many a fresh start. Cancelling debt like this also has downsides and isn’t popular in many circles. But what is done is done. Now the administration will need to help applicants navigate the process and hold loan servicers responsible for managing their accounts.
Under the program, the White House will forgive up to $10,000 of federal student debt for borrowers who make less than $125,000 per year, or households making under $250,000. Recipients of a Pell Grant, a form of federal student aid targeted at low-income families, could qualify for an additional $10,000 in relief, provided they met the same income requirements. Biden also announced a four-month extension to the student loan moratorium, which pauses payments on federal student loans until Dec. 31. The moves deliver on Biden’s 2020 campaign promise to cancel a minimum of $10,000 of federal student loan debt per person.
This is welcome news for many of the 2.6 million Floridians with federal student loans. Borrowers here have the fifth-highest debt burden in the nation, owing more than $38,000 in federal loans on average. One-third of borrowers owe less than $10,000 and could see their student debt wiped out entirely. For many, the forgiveness plan is a game-changer in a state that is becoming increasingly unaffordable.
It’s a shame the administration raised so many hopes but offered so few critical details. While federal student loan debt, including PLUS loans, are eligible, private loans are not. Some Federal Family Education Loan debt may also go uncovered. The Department of Education will set up an application process by the end of the year, which should inform borrowers whether they are eligible for “automatic” relief or whether more paperwork is involved. Borrowers are also encouraged to contact their loan serving agencies to resolve any questions and ensure that any credits are properly applied. This plan is still a work in progress. The administration needs to keep the application process simple, and ensure that loan servicers are being responsive and accurately handling their clients’ claims.
Of course, this one-time debt cancellation doesn’t erase the bigger problem of borrowers carrying high interest rates on outstanding student loans, which can cause these debts to balloon over time. Biden also announced Wednesday he is proposing a new plan to substantially reduce the monthly payments for student loans among lower- and middle-income borrowers. The proposal would reduce payments on undergraduate loans to no more than 5% of a person’s discretionary income, down from 10% under the most recent income-driven payment plan. The new plan would also shield more household income for borrowers, meaning that those earning the equivalent of a $15 hourly wage won’t have to make a monthly loan payment.
Biden’s plan would cost the government — yes, you — nearly $330 billion over the next 10 years. That’s not cheap. It’s also no substitute for broader strategies to make college (and student debt) more affordable. But Biden has committed to student loan forgiveness, so the administration must at least guarantee that this program succeeds. That will require being clear and helpful to borrowers and holding loan servicers to high expectations.
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