The White House said the announcement would cancel the debt of roughly 20 million borrowers and said that nearly 90% of the relief would go to households earning less than $75,000 a year. No household in the top 5% of incomes would receive relief.

Still $10,000 in broad-based cancellation, particularly with a means test, is not as drastic as some lawmakers, advocates and borrowers themselves had hoped. At the same time, critics of mass student debt relief have charged that it would provide a benefit to Americans near the top of the income scale and could add fuel to an already inflationary economic environment. 

“For millions of people and millions of families it would have a huge effect,” Abby Shafroth, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, said of the policy announced Wednesday. “What it would not do is create a long term change by itself to the student loan system. That’s why we’re also advocating for the Department of Education, the Biden Administration as well as Congress to make more permanent reforms to the student loan system so we don’t have more borrowers facing this crisis again.”

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Since Biden took office, the question of whether his administration would provide some kind of broad-based student debt relief has loomed over his presidency. For his part, Biden always expressed some hesitation at canceling the debt through executive action and particularly at discharging any amount larger than $10,000.  

Instead, the Biden administration had focused on so-called targeted forgiveness, discharging debt for borrowers, including those scammed by their schools and borrowers with severe disabilities, who were waiting on promised relief from government programs for years. Republican lawmakers have criticized any relief the Biden administration has provided to student loan borrowers as an unfair cost to taxpayers. 

Senior administration officials framed the plan as part of that pattern of focused relief, saying on a call with reporters that it offers “targeted debt relief to lower and middle income families.”  If all borrowers claim the relief to which they’re entitled, about 43 million borrowers would benefit from the plan, the White House said. 

Advocates watching implementation closely

It remains to be seen how easy it will be for eligible borrowers to claim the forgiveness. Department of Education officials said they would announce details on how borrowers can receive the relief “in the coming weeks.” The agency estimates that nearly 8 million borrowers may be able to have their loans discharged automatically because they’ve already provided the relevant income information to the Department.  

“We’re going to be watching the government to make sure they’re actually delivering on this,” Shafroth said.

Advocates like Shafroth worry that a means test would actually wind up excluding the most vulnerable borrowers because they’re less likely to have the time and resources necessary to navigate a bureaucratic application process. 

Even without a means test, high-income borrowers would receive an almost miniscule percentage of the benefit of the debt relief plan. Canceling $10,000 per borrower without an income cap would mean that about 1.07% of the relief would accrue to the top 5% of the income distribution, according to the Penn Wharton Budget model. The analysis didn’t look at $20,000 in debt forgiveness, but did find that if the government were to cancel $50,000 in student debt without an income cap that less than 5% of the benefit would accrue to the top 5% of earners. 

Pell grant component could help target relief

Providing additional relief to Pell grant recipients could help direct the aid to those who need it the most, though it wouldn’t perfectly capture the student loan borrowers who are most vulnerable today. The Pell grant is the money the federal government provides to low-income students to attend college. 

That component of the debt relief plan reflects that the Pell grant program, which was intended to ensure that low-income students didn’t have to borrow to attend college or at worst would borrow very little, hasn’t lived up to its potential, said Mark Huelsman, director of policy and advocacy at the Hope Center for College, Community and Justice at Temple University. 

More than 70% of students who graduated with any federal student loans received a Pell grant, according to a 2020 analysis from The Institute for College Access and Success, a research and advocacy group. These borrowers also have about $4,500 more in debt than non-Pell graduates, the analysis found. 

“The promise of the Pell grant was to equalize college opportunity and equalize the cost for low-income students,” Huelsman said. By providing additional cancellation to former Pell grant recipients, the White House announcement, “retroactively restores some of the promise of the Pell grant,” he added.   

Using the Pell grant as a proxy for who qualifies for a certain amount of relief will also likely make it easier for the Department of Education to provide a large cohort of borrowers with cancellation automatically, Huelsman said. The agency doesn’t have income information for all of the borrowers in its student loan portfolio, but it does know which borrowers used a Pell grant in college. 

Still, Huelsman said, using Pell grants to target loan forgiveness is an “imperfect” way to figure out who is in need of financial help. Some low-income students may have used private loans so they won’t benefit from any cancelation, others may not have qualified for or used Pell grants in college. 

Sorting through these and other knotty questions is part of the reason why many student loan advocates are concerned about means testing relief.

“The better option is no income test,” Huelsman said, adding that if policymakers are truly concerned about wealthy households benefiting, there’s another way to address it: “we have a tax system for that,” he said. “It’s not easily done through student loan policy.”  

History of borrowers struggling to navigate red tape

Adding fuel to advocates’ worry about borrowers’ ability to manage any red tape is historical experience. Over the past several years, advocates have watched as borrowers struggle to access debt relief they’re entitled to under the law. They’ve charged that the companies hired by the government to manage its student debt portfolio have thrown obstacles in the way of borrowers taking advantage of some of the benefits of the federal student loan program. 

Student loan servicers are already warning that Biden’s debt relief initiative may be difficult to implement. Sorting through questions like which loan to apply the debt cancellation to, how it will interact with other debt relief programs already on the books and actually operationalizing those decisions will require time-consuming programming on the back end of the student loan payment system, said Scott Buchanan, the executive director of the Student Loan Servicing Alliance. The means test will also add to the complexity, he said. 

More immediately, because servicers didn’t receive any details of the announcement in advance, Buchanan said he’s also worried that the companies will be hit with a deluge of calls about the plan and have little information to provide. He said “there’s no need” to call servicers now because they don’t have guidance on the announcement yet and said servicers or the Department of Education would reach out with more information. 

“People are going to be on hold for a long time only to be told we don’t have a lot of answers,” Buchanan said. “Our job is customer service in many respects. That’s going to be a poor customer experience and I don’t know that there’s anything we can do about that.” Buchanan advised borrowers not to make any financial changes until they see the cancellation show up in their accounts. 

Though borrowers will likely have to wait to feel the impact of the relief, Wednesday’s announcement at least provides some certainty after months of debate over what the President would do. In the past several days, prominent economists have expressed concern that any student debt relief could boost inflation. A senior administration official told reporters on the call that the White House believes the combination of restarting payments and canceling debt would largely offset one another and therefore likely wouldn’t boost inflation. Other economists agree. 

Congressional leaders, including Majority Leader Chuck Shumer and Sen. Elizabeth Warren, a Democrat of Massachusetts, had called on the President to cancel $50,000 in student debt. Other advocates urged cancellation on a similar level or for the White House to even wipe out borrowers’ entire student debt burden. 

“We had hoped for a greater amount of relief,” said Persis Yu, senior policy director and managing counsel at the Student Borrower Protection Center, a borrower advocacy group. “It’s worth both highlighting and celebrating what it will do but also acknowledging what it’s not going to do.”  

For example, while the policy will likely help millions of defaulted borrowers, who face the most severe consequences of the student debt system, by canceling their loans, it likely won’t make much of a difference for borrowers with high balances who are paying off their debt as a percentage of their income. “They might be making the same payments as they would otherwise,” Shafroth said. 

Canceling $10,000 also likely won’t put a huge dent in the racial wealth gap. Providing between $50,000 and $75,000 in debt relief would provide the largest marginal gains for Black households relative to white ones, according to a 2021 analysis of the impact of any debt forgiveness policy on racial equity. Still, the White House touted the decision to direct additional relief to Pell grant recipients as one that would narrow the racial well gap since Black students are more likely than their white counterparts to receive Pell grants. 

Regardless of the amount canceled, proponents and detractors of the Biden Administration’s announcement say it won’t solve the nation’s student loan problem. Advocates of debt relief have argued that in addition to canceling student debt, lawmakers should work to make higher education more affordable on the front end, including by better subsidizing the nation’s public colleges.  

Shafroth said policymakers should also work to get rid of the more onerous aspects of the student loan repayment system that cause borrowers’ balances to balloon even while they’re throwing money at their debt. The Biden Administration also announced Wednesday that the Department of Education is proposing reforms to the loan repayment plans that allow borrowers to pay back their debts as a percentage of their income, which could help to address that problem.  

The proposal includes cutting the percentage of monthly income borrowers with undergraduate loans will be required to devote to their debt from 10% to 5% and canceling loan balances after 10 years of payments for borrowers who originally took on $12,000 or less in debt. 

“We need long term systematic changes both so that loans aren’t being originated in amounts that borrowers are unlikely to be able to repay,” Shafroth said, “And so that once borrowers are in repayment they have good affordable repayment options with a true safety net.”