MICHIGAN NEWS / Aug.24.2022 / MLive
A student debt plan announced by President Joe Biden Wednesday will bring Michigan Student Loan Forgiveness for many Michigan borrowers. The Biden administration plans to forgive $10,000 per borrower and $20,000 per Pell Grant recipient who are making less than $125,000 individually or $250,000 for households. A pause on student loan repayments will also be extended “one final time” through Dec. 31. And the income-driven repayment plan is being overhauled to reduce costs for borrowers.
“Here’s what my administration is going to do to provide more breathing room for people, so they are less burdened by student debt,” Biden said during an Aug. 24 press briefing.
White House officials say 43 million Americans will be impacted with about 20 million seeing their debt erased. In Michigan, there are 1.4 million student loan borrowers holding $51.3 billion in debt, federal data shows. About 700,000 of those with federal student loans will see their debt cut in half or erased completely, according to the governor’s office. “People can use these savings to buy a home, start a business, get married, or start a family. I will work with anyone to keep lowering the cost of higher education and offering more paths for Michiganders to earn a higher education tuition-free, without going into debt in the first place,” said Gov. Gretchen Whitmer in a statement.
A two-year pause on federal student loan payments has now been extended eight times throughout the pandemic. With each deadline, Biden faced increasing pressure to take broader action to address the $1.7 trillion student debt crisis. The current payment pause was set to expire on Aug. 31. “It undoubtedly will help Michiganders who have student debt. Not only the $10,000 reduction in debt but also the deferment of payments until the end of the year,” said William Elliott, a University of Michigan professor of social work who researches college savings accounts, college debt and wealth inequality. Nearly 425,000 Michigan borrowers have less than $10,000 in debt and another 283,000 have less than $20,000, federal data shows. Cumulatively they account for half the state’s student borrowers and hold about 12% of the debt. The bulk of the debt in Michigan, about $45 billion, is carried by 50% of student borrowers. Elliott says removing the “albatross of student debt” will change how Michigan borrowers view their futures, ability to save, employment prospects and the economy. “It’s not enough for some, but it’s going to be a whole lot for others. And it will help all,” he said. “Sometimes in policy, that’s the best thing you can do in the moment.”
Nearly 8 million Americans will get automatic student debt relief, according to the White House. The U.S. Department of Education expects to launch an application in coming weeks for the remaining borrowers. Only loans taken out before June 30, 2022 are eligible for forgiveness. The announced changes to income-driven repayment plans will reduce costs for low- and middle-income borrowers. Income limits will be raised, and borrowers will be required to spend only 5% of their income on loans, down from 10%. Additionally, loan balances for those with $12,000 or less will be forgiven after 10 years instead of 20 years. And unpaid monthly interest won’t accumulate for those on an IDR plan even with a $0 payment. “I believe my plan is responsible and fair. It focuses the benefit on middle class and working families. It helps both current and future borrowers and will fix a badly broken system,” Biden said.
The plan, setting a precedent for student debt forgiveness, will likely be challenged in court. About 59% of Americans are worried student loan forgiveness will worsen inflation, a recent CNBC Momentive Poll found. Deputy director of the National Economic Council Bharat Ramamurti disputed these concerns saying the restart of payments will bring “billions of dollars a month” to the federal government. The Wharton School of the University of Pennsylvania estimated this week a $10,000 forgiveness plan with a $125,000 income limit will cost the federal government about $300 billion. Elliott believes student loan forgiveness should be the “first step and not the last step” in addressing the high cost of college.“I do think that it needs to be pressed upon (Biden) that this is not the end and there needs to be additional things done to finance education in a more equitable way that are more long-term and impactful,” he said. “We’re addressing the symptom. The symptom is because of a bad way to finance education, people have large amounts of debt.” Elliott says action can be taken by U.S. lawmakers, state governments and local municipalities to lower the cost of college including public service forgiveness programs and children’s saving accounts.