The administration will also extend its pause on student loan payments through the end of the year
WASHINGTON — U.S. President Joe Biden will announce Wednesday that the government will forgive $10,000 in student loans for many of the nation’s debt-ridden students, sources said, a move that could boost support for Democrats in the midterm elections but could increased inflation as well.
Canceling the debt would free up hundreds of billions of dollars in new consumer spending, adding a new wrinkle to the country’s fight against inflation, economists say.
Democrats had pushed for Biden to write off up to $50,000 per borrower, arguing that the debt makes it impossible for younger Americans to save for down payments on homes or other large consumer purchases. Republicans argue the move will disproportionately help higher-income people.
American consumers carry a whopping $1.75 trillion in student loan debt, most of which is held by the federal government, a result of tuition fees at private and public universities that are significantly higher than in most other wealthy countries .
The administration will extend its pause on student loan payments through the end of the year, while also announcing plans to forgive up to $10,000 in student debt for borrowers whose income falls below $125,000 a year.
It also would cancel up to $20,000 in debt for Pell Grant recipients, about 6 million students from low-income families.
Reducing $10,000 in federal debt for each student would total $321 billion in federal student loans and eliminate the entire balance for 11.8 million borrowers, or 31 percent of them, a New York Federal Reserve study shows.
The pandemic-related state pause in student loan interest and payments is set to expire at the end of August. Borrower balances have been frozen since the start of the COVID-19 outbreak, with no payments required on most federal student loans as of March 2020.