US President Joe Biden has announced a plan that could see student loan debts reduced — and in many cases eliminated — for more than 40 million Americans, a historic but politically divisive move in the run-up to the midterm elections.
Fulfilling a campaign promise, Mr Biden is erasing $US10,000 in federal student loan debt for those with incomes below $US125,000 a year, or households that earn less than $US250,000.
He will cancel an additional $US10,000 for those who received federal Pell Grants to attend university.
It’s seen as an unprecedented attempt to stem the tide of America’s rapidly rising student debt, but it doesn’t address the broader issue — the high cost of university.
Republicans quickly denounced the plan as an insult to Americans who have repaid their debt and to those who didn’t attend university.
There were also fears that the plan could make inflation worse.
Critics across the political spectrum also questioned whether Mr Biden has authority for the move. Legal challenges are virtually certain.
Mr Biden also extended a pause on federal student loan payments for what he called the “final time”. The pause is now set to run through the end of the year, with repayments to restart in January.
“Both of these targeted actions are for families who need it the most: working and middle class people hit especially hard during the pandemic,” Mr Biden said at the White House on Wednesday.
The cancellation applies to federal student loans used to attend undergraduate and graduate school, along with Parent Plus loans.
Current university students qualify if their loans were issued before July 1. For dependent students, their parents’ household income must be below $250,000.
Most people will need to apply for the relief. The Education Department has income data for a small share of borrowers, but the vast majority will need to prove their incomes through an application process.
Officials said applications will be available before the end of the year.
Mr Biden’s plan makes 43 million borrowers eligible for some debt forgiveness, with 20 million who could get their debt erased entirely, according to the administration.
About 60 per cent of borrowers are recipients of federal Pell Grants, which are reserved for undergraduates with the most significant financial need, meaning more than half can get $20,000 in relief.
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