Some Americans to get their student loans cancelled in February as Biden accelerates his new plan

President of the US - Joe Biden | Credits: Reuters
President of the US - Joe Biden | Credits: Reuters

United States: The Biden administration will begin cancelling student loans for some borrowers in February as part of a new repayment scheme that goes into effect nearly six months earlier than expected.

Repayment Plan

Loan cancellation was initially scheduled to begin in July under the new SAVE repayment plan, but it is being hastened to provide homeowners with more immediate assistance, President Joe Biden announced Friday. 

The Democratic president said in a statement that it is part of an effort “to act as quickly as possible to give more borrowers breathing room” and help them pay down their school debt.

Eligibility Criteria for Loan Cancellation

 Borrowers will be eligible for cancellation if they are enrolled in the new SAVE plan if they originally borrowed US$12,000 or less to attend college and have made at least ten years of payments. The Education Department said it didn’t immediately known how many borrowers will be eligible for cancellation in February. 

Biden unveiled the new repayment scheme last year, along with another plan to cancel up to US$20,000 in loans for millions of Americans. The Supreme Court overturned his idea for mass forgiveness, but the payback plan has yet to face judicial scrutiny. Last year, Republicans in Congress unsuccessfully attempted to halt the new repayment plan through legislation and a resolution.

The new plan has significantly more liberal terms than numerous existing income-driven repayment schemes that it is intended to replace. Previous plans allowed cancellation after 20 or 25 years of payments; however, the current plan allows it after as little as 10. The new strategy also reduces monthly payments for millions of debtors.

President Biden’s Motivation

The Biden administration claims that next month’s relief will benefit Americans who attended community institutions, which are often less expensive than four-year universities. The strategy intends to put community college students “on a faster track to debt forgiveness than ever before,” Education Secretary Miguel Cardona stated.

Surprisingly, those with smaller student debt balances struggle more. It is ignited by millions of Americans who take out student loans but are not able to complete their degrees, leaving them with the disadvantage of debt rather than having a better income.

Republican Criticisms

Republicans have criticized the new repayment plan, claiming that it benefits wealthy Americans with college degrees at the expense of taxpayers who did not attend college. Some believe it is a backdoor attempt to make community college free, a concept that Biden ran on but failed to get traction in Congress.

Beginning next month, the Education Department said it will automatically remove amounts for eligible borrowers enrolled in the SAVE plan. The agency will send an email to debtors who may be qualified but have not enrolled.

Some of the plan’s components went into effect last summer, including preventing interest from snowballing as long as borrowers complete monthly payments and expanding eligibility for monthly bill reductions to US$0.

Other provisions are set to take effect in July, including a tweak that will limit borrowers’ payments to 5% of their discretionary income, down from 10% in prior income-driven repayment programs.

The Biden administration is pursuing a distinct scheme for mass cancellation. After the Supreme Court rejected Biden’s initial proposal, he requested the Education Department to try again under a new legal authority. The department has been developing a new proposal that will provide relief to specific groups of borrowers.