For more than 175,000 borrowers who are eligible for the Public Service Loan Forgiveness (PSLF) programme, President Joe Biden is pushing ahead with $10 billion more in student debt relief.
Following the administration’s $32 billion debt forgiveness as part of targeted student loan relief initiatives, the Education Department made the announcement on Tuesday in order to help employees of all levels of government and nonprofit organisations.
The future of student debt forgiveness, which may include an extension of the repayment moratorium and the cancellation of $10,000 in federal loans for any borrower earning less than $125,000, is another topic that Biden is anticipated to address on Wednesday.
The federal government would have to spend at least $329.7 billion over the next ten years to eliminate this debt, according to a research by the Penn Wharton Budget Model.
Based on the Penn research, the nonprofit National Taxpayers Union Foundation estimates that cancelling $10,000 per borrower would cost every taxpayer $2,085.59, even those Americans without outstanding student loans who did not get the forgiveness.
Studies that claimed the cancellation would benefit the top 60 percent of income and cost individual taxpayers thousands to pay off the debts of “highly educated, affluent borrowers” were refuted by House Minority Leader Kevin McCarthy.
Who foots the bill? the Republican from California questioned in a statement on Wednesday. “Honest Americans who have previously paid off their obligations or have never had debt to begin with.”
Prior to Biden’s presidency, just 7,000 debtors had ever qualified for relief under the PSLF programme, resulting in the $10 billion in forgiveness announced on Tuesday.
Miguel Cardona, the secretary of education, said in a statement on Tuesday that “for far too long, teachers, nurses, veterans, government workers, and many others devoted to serving our nation discovered Public Service Loan Forgiveness to be nothing more than an empty promise.”
One of the biggest chunks of debt written off by the federal government was $10 billion, and DOE announced changes to the programme for public employees on Tuesday.
Most recently, the government cancelled $3.9 billion in student debt for 208,000 debtors who attended the long-gone ITT Technical Institute as part of targeted relief initiatives.
With the most recent round of forgiveness, Biden has forgiven more than $40 billion in student loans overall.
According to a statement released by Secretary Cardona on Tuesday, “Today’s announcement that we’ve exceeded $10 billion in forgiveness for more than 175,000 public servants shows that the Biden-Harris administration’s efforts to cut red tape are turning the Public Service Loan Forgiveness programme from a promise broken into a promise kept.”
“We’re dedicated to assisting borrowers who choose to pursue professions in education, public health, social work, law enforcement, and other important sectors achieve the benefits to which they are entitled for conducting lifetimes of service.”
Borrowers often complain that the Public Service Loan Forgiveness programme is hard to understand.
Government and nonprofit workers are among those who are eligible, as well as teachers, firemen, nurses, physicians, and public defenders.
The program’s requirements are that participants look for full-time employment in eligible public service positions and make 10-year student loan payments. The federal government would then waive any unpaid debts after that time frame.
However, when used, the application didn’t function as anticipated.
The federal government has repeatedly rejected almost all applications throughout the years due to a few strict requirements, such as having the incorrect sort of repayment plan or making late payments.
Some applicants were turned down because their loans weren’t the correct kind to qualify for forgiveness, but they weren’t made aware of this until they had repaid their loans for ten years.
In order to alter the programme and make it simpler for qualified employees to have their debts cancelled, the Education Department announced amendments in October 2021.
According to reports published on Tuesday, Biden will reportedly make a statement on Wednesday on the possibility of extending the repayment moratorium for a fifth time as well as fulfilling a campaign pledge to erase $10,000 in federal debts for each borrower.
According to other publications, the $10,000 forgiveness would only apply to debtors earning less than $125,000 per year.
If no action is done to extend it once again, the repayment halt, which has been in effect since the coronavirus epidemic began in March 2020, will expire on August 31.
Some low-income borrowers who earned Pell grants, according to those involved with the conversations, might potentially get a larger level of debt forgiveness under Biden’s ideas.
Just two months before the 2022 midterm elections, in which Republicans are predicted to retake control of at least the House and maybe the Senate, announcements are anticipated.
According to a recent study by the Penn Wharton Budget Model, erasing student loan debt for this income group over a ten-year period may cost between $300 and $980 billion.
It also mentions that debtors who are in the top 60% of earners will get between 69 and 73 percent of the relief.
The University of Pennsylvania’s Penn Wharton budget group, which was founded and is led by the senior Treasury official under George W. Bush, has a lot of clout with prominent senators, such as moderate Democratic Senator Joe Manchin.
Former Obama economic advisor Larry Summers cautioned the Biden administration against providing ‘unreasonably generous’ student debt relief and projected that it would cause inflation to increase higher.
He said that extending the existing moratorium on student loan payments, which is slated to expire the next week, would be the “worst decision.”
President Biden’s White House has been hinting for months that there may be a possibility of cancelling a specific sum for each particular borrower, even if the finer details of an anticipated statement on the future of student debt forgiveness are still being worked out.
According to insiders, the administration is considering the prospect of extra forgiveness for certain demographic subgroups in addition to the standard forgiveness of $10,000 per borrower fulfilling a certain income criteria.
The future of the student loan moratorium will be announced in the next week, according to Education Secretary Cardona, who also said this on Sunday.
After student loan repayment was first suspended in March 2020 at the start of the COVID-19 epidemic, it is anticipated that the government would prolong the moratorium for a fifth time.
The public health emergency, which simultaneously saw the commencement of widespread layoffs and furloughs, meant that those who had outstanding federal student loans were not required to make monthly payments for about two and a half years. Additionally, their interest accrual was also suspended at this time.
Despite the employment market’s improvement, the United States continues to be plagued by a number of economic problems, such as record-high gas prices, inflation, and a conventional recession, which is defined as two consecutive quarters of negative Gross Domestic Product (GDP) growth.
According to Education Secretary Cardona, debtors should find out from the government if the student loan moratorium is extended once again in the “next week or two.”
Cardona told Chuck Todd of NBC Meet the Press, “We know August 31st is a day that many people are eager to hear something from.”
He comforted her, “We’ve been talking about this every day.” And I can assure you that over the next week or two, Americans will learn.
Is it accurate to state that it won’t be nothing, Todd questioned?
The secretary responded, “Well, I don’t have any news to announce today.” But I can assure you that the American people will hear directly from us because we understand how crucial this subject is to the whole nation.
Larry Summers tweeted in response to Cardona’s comments, saying, “I hope the Administration does not contribute to inflation macroeconomically by granting too generous student debt relief or microeconomically by supporting college tuition hikes.”
The National Economic Council director during the Obama administration and the Treasury secretary during the Clinton administration both agreed that maintaining the present moratorium, which helps highly compensated doctors, attorneys, and investment bankers, would be the worst option.
According to Summers’ tweet, “every dollar spent on student debt relief is a dollar that might have supported those who don’t have the chance to go to college.”
“Student loan debt relief is expenditure that boosts inflation and demand.” It uses up resources that may be better utilised to assist people who, for whatever reason, were denied the opportunity to enrol in college. By increasing tuition, it will also tend to cause inflation.