Biden Student Debt Cancellation Update: Democrats Issue Warning

A group of 87 Democratic senators and representatives sent a letter to President Joe Biden on Wednesday, imploring his administration to provide additional relief as federal student loan payments are set to resume October 1.

In June, the Supreme Court as part of a 6-3 decision struck down Biden's student loan forgiveness plan that would have affected over 43 million Americans by granting borrowers earning less than $125,000 a year up to $10,000 in debt relief and would have made $20,000 available to Pell Grant recipients from low-income households. Borrowers collectively owe over $1.6 trillion.

While loan payments will resume in October following a multi-year moratorium that began during the COVID-19 pandemic under the Donald Trump administration and was continued by Biden, interest will begin to accrue on loans starting September 1.

The letter, signed by Senator Elizabeth Warren, Majority Leader Chuck Schumer, Representative Ayanna Pressley and others, was delivered nearly on the one-year anniversary of Biden announcing his intentions to cancel $10,000 of debt for low- and middle-income borrowers—a plan estimated to have wiped clean the debts of about 20 million borrowers, including nearly half of all Latino borrowers and one out of four Black borrowers.

"Although the Supreme Court has chosen to stand in the way of your initial student debt relief plan, we recognize that as President of the United States, you have additional tools to provide relief," the letter reads. "Working- and middle-class families need this relief to come as soon as possible. We urge you to continually find ways to use your authority to bring down student debt, address the rising cost of college, and make postsecondary education affordable for all students who choose that path.

They added: "Borrowers have already waited nearly a year for the relief you announced in August 2022, and critics of your plan to help 43 million Americans are likely to renew their attacks with regard to your rulemaking announcement. We urge you to reject their bad-faith, partisan attempts to delay relief and carry out your efforts to help borrowers as quickly as possible."

Massachusetts Representative Jim McGovern told Newsweek via email that most hardworking Americans are simply trying to keep their heads above water.

"If we don't deliver on student debt relief, we're telling the American people that you can only get an education and provide for yourself and your family if you have a $100,000 head start," McGovern said. "That's not fair and it's not right. President Biden has shown his commitment to the middle class. He's cancelled the most student debt by any president in American history, but we must all keep pushing to give families who are just trying to make ends meet a little more breathing room."

A spokesperson for Pressley referred Newsweek to the congresswoman's post on X, formerly Twitter.

"The student debt crisis is impacting folks across the country, and thanks to the callous Supreme Court, borrowers are facing a financial cliff this fall," Pressley wrote today. "That's why@POTUS must deliver #CancelStudentDebt as quickly as possible and go as broad & deep as the hurt is."

Lawmakers also expressed "grave concern" about spikes in student debt delinquencies and defaults once payments resume, requesting the Department of Education to implement a rule so that borrowers are not immediately and negatively impacted.

A recent poll conducted by Intelligent.com found that 62 percent of loan borrowers are likely to boycott payments, which breaks down to 26 percent saying "highly likely" and 36 percent saying "somewhat likely."

Most student loan borrowers with outstanding debt owed less than $25,000 on their own educational loans, according to a June report by the Federal Reserve that analyzed economic data between May 2022 and 2023. The median amount of debt among those with any outstanding debt for their own education was between $20,000 and $24,999.

Don't 'bury your head in the sand' on payments

Student loan experts say that borrowers, whether those with existing debts or those paying for the first time, should confirm their plans via the National Student Loan Data System, StudentAid.gov and through their individual providers.

"If there's a forgiveness program to be had that's not there now and it's not going to be legally challenged, it's going to have to be the Congress getting together with the president to get stuff passed," Jack Wallace, director of governmental and lender relations at Yrefy, told Newsweek via phone.

There is also a provision in the Cares Act that amended section 127 in the IRS code that permits $5,250 per tax year for 2023, 2024 and 2025, Wallace added, for people to pay their student loans from salary received from their employer on a pre-tax basis.

About 4 million people will also be paying two loan payments due to federal and private loans.

"People with private loans that are about to make payments on federal loans may want to look at refinancing options for their private loans," Wallace said. "Having said that, interest rates have gone up substantially over the course of the last 16 months...so this is really going to be an option for people with excellent credit, or maybe people with good credit.

"It's not going to be for everybody, but there may still be an opportunity there for people to get a better rate than they're paying. If they haven't refinanced and if they had a lower credit score when they took the private loan out and now their credit has gotten better."

Jacob Channel, senior economist and student loan repayment expert at LendingTree, told Newsweek via phone that with inflation still at abnormal levels and interest rates rising, borrowers should be proactive.

"Log back into your student loan service, figure out what you owe and what your monthly payment would be, and then look into options for relief like getting on an income-driven repayment plan," Channel said. "I think more people are using them than before and it's important that people remember that although broad student loan forgiveness is at least for the time being off the table, there are still more targeted forms of either forgiveness, like for folks who maybe have permanent disabilities."

Earlier this week, the White House announced the Saving on a Valuable Education (SAVE) repayment plan.

Described by the Biden administration as "the most affordable student loan plan ever," it is a new income-driven repayment program that could potentially aid over 20 million borrowers by reducing the discretionary gap from 10 percent to five percent—which could lead to savings of $1,000 per year, per borrower. It also can reduce accrued interest.

It also prevents borrowers from being reported to credit bureaus for a 12-month period.

"I wouldn't recommend burying your head in the sand or just pretending that your payments don't exist," Channel said. "While the on-ramp can help you protect your credit score, if you don't make your payments for a year, you're still going to end up dealing with interest accumulating; you're still gonna end up dealing with your loan getting bigger because it's accumulating interest."

Newsweek reached out via email to the Department of Education, White House and other lawmakers for comment.

Update 08/25/23, 9:25 a.m. ET: This story was updated with comment from Representative Jim McGovern.