Biden is close to canceling $10,000 student debt, but it will take time to realize

  • The Biden administration is poised to offer student debt relief to most borrowers.
  • But their efforts to exclude high earners can create a bureaucratic nightmare for others.
  • A higher education expert has warned of a “red tape trap” that undermines a program’s effectiveness.

Millions of federal student loan borrowers may soon be able to get long-awaited debt relief — but a ton of paperwork could get in the way.

During the election campaign, President Joe Biden promised indebted federal borrowers that he would approve $10,000 in aid. He said in April that a decision on his execution would be made in the coming weeks.

Although details remain open, the White House is set to provide $10,000 in debt relief to singles earning $150,000 and under, and couples earning $300,000 and under. By these metrics, around 97% of borrowers would be eligible in an apparent attempt to keep relief narrowly targeted for those in default.

But some experts and Democratic lawmakers are sounding the alarm over the targeting of loan forgiveness, citing the administrative burden that would fall squarely on poorer borrowers. The initiative that many Democrats are counting on to help them in the polls ahead of the fall midterm elections risks turning into a bureaucratic fiasco that excludes borrowers least able to repay and blunting its effectiveness in government. ‘coming.

“You don’t make politics more progressive because of the difficulty for people to demonstrate that they have low enough income to benefit from it,” Mike Pierce, executive director of the nonprofit Student Borrower Protection Center, told Insider. . “The administrative burden associated with any effort to limit income will eventually make it difficult, if not impossible, to write off debt for those with the lowest incomes.”

“In practice, an income cap would force the federal government to set up a paperwork trap that could deny aid to student borrowers who need the most help,” said Bryce McKibben, a former Democratic political adviser. written in a blog post.

A potential problem is targeting debt relief according to the borrower’s income. This would require the Ministry of Education to verify a person’s identity and income to determine if they are eligible for a relief program. But the Ministry of Education does not have this information for borrowers. The Internal Revenue Service holds this data for many taxpayers, but it is forbidden to share with other federal agencies and private companies.

“I don’t know if the Department of Education can ask the IRS to provide them with this kind of information given the privacy rules,” said Matt Bruenig, founder of the left-leaning People’s Policy Project, in an interview.

“A cautionary tale”

Student debt protesters

Student Borrowers and the Too Much Talent Band thank President Joe Biden and Vice President Kamala Harris for extending the student loan pause and now demand they cancel student debt at a rally outside the White House on January 13, 2022.

Paul Morigi/Getty Images for We The 45 Million


As policy reported Earlier this month, the Department for Education privately expressed concerns that it does not have the necessary data to verify the incomes of borrowers itself. So, if the department chooses to impose an income cap, the borrower will likely need to complete paperwork to access loan forgiveness.

This is concerning for Pierce, who noted that the paperwork required to qualify for relief has long prevented borrowers from canceling debt to which they would otherwise be entitled. He mentioned loan forgiveness programs for civil servants and income-tested repayment plans.

“Income-based reimbursement is a cautionary tale here,” Pierce said. “We have this program that promised $0 monthly payments to low-income people, but it ended up working really well for people who have good jobs and can take the time to learn the rules and the administrative process. “

The Ministry of Education declined to comment on the case.

Eugene Steuerle, co-founder of the Urban-Brookings Tax Policy Center, said it’s complicated to design a debt relief program that provides a level playing field between different types of borrowers.

“The other problem with an income test is over what period are you going to apply it?” Steuerle told Insider, using a hypothetical example of a grad student with no annual income. “If I’m in graduate school and have no income, so I meet all the qualifications, I’m going to be different from someone making $50,000 a year as a welder.”

If Biden imposes income thresholds on forgiveness, not only will the relief likely not be automatic and will take weeks to reach borrowers’ accounts — it could also coincide with the expiration of the scheduled student loan payment pause for the September 1st. This would be an additional burden for borrowers who have not repaid their debt for the duration of the break.

A Senate Democrat says he’s pushing the White House to establish a program that doesn’t bury borrowers under a mountain of paperwork. “We have to tailor this so that we don’t get tangled up in a bureaucratic mess,” Sen. Raphael Warnock of Georgia recently told Insider.

Warnock, alongside the senses. Elizabeth Warren of Massachusetts and Chuck Schumer of New York are leading advocates urging the White House to administer $50,000 in debt relief per borrower before the November midterms. Biden, however, has already ruled out relief on this scale.

Republicans are hitting Democrats for moving toward debt relief, calling it a bailout for the urban professionals who make up a growing chunk of their constituency.

But Democrats are scrambling to demonstrate their party can deliver on their campaign promises with their climate and tax bill in the Senate, due to resistance from Sen. Joe Manchin of West Virginia. Biden’s approval rating among young voters has plummeted.

These lawmakers also pushed back against the idea that student loan forgiveness would benefit the highest earners — an argument advanced for why an income cap should be necessary. Warren downplayed the problems that could arise from means-tested aid.

“They may have to spread information and ask people to apply,” Warren told Insider. “But there’s no reason the Department of Education can’t act quickly once the White House announces debt cancellation.”

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