EDITOR’S NOTE: Since this story was published, President Joe Biden announced his student loan forgiveness plan. See details here.
(NEXSTAR) — After months of reported discussions and small but impactful bouts of debt discharges, the Biden administration is expected to announce its plan to cancel a portion of the nation’s roughly $1.6 trillion in student loan debt on Wednesday.
Sources with knowledge of the situation told The Hill that President Biden’s announcement will include not only another payment pause, expected to last roughly four months, but the largest forgiveness of federal student loan debt to date.
It is expected that Biden will forgive $10,000 in loans for borrowers making less than $125,000 annually.
This isn’t much of a surprise – while on the campaign trail, Biden supported such a plan. He confirmed in May that despite calls from fellow Democrats to aim higher, he would not forgive $50,000 per borrower.
A blanket decision to forgive $10,000 per borrower without any income restrictions would have resulted in 11.8 million borrowers – slightly more than 31% – having their entire balance eliminated, an analysis from the New York Federal Reserve outlined in April. Another 20% would see their debt cut in half, the latest data from the Department of Education shows.
This forgiveness could cost the federal government around $300 billion, research by the University of Pennsylvania’s Penn Wharton Budget Model predicted Tuesday.
It’s currently unclear how many borrowers would be impacted – and how much forgiveness could cost – under the expected $125,000 a year income cap Biden is expected to roll out Wednesday.
What also remains unclear is how else student loan forgiveness eligibility could be limited. Many have previously called for loans used for certain programs like medicine and law to be excluded from widespread debt cancellation. When asked earlier this year about Biden’s concerns about providing relief to borrowers that attended schools like Harvard and Yale, then-White House Press Secretary Psaki explained the president wants to ensure the relief is “targeted to those graduates who have the greatest needs.”
Parent PLUS Loans, loans taken out by parents on behalf of their student, and FFEL loans, federal loans held by private entities, may also be included in debt forgiveness, according to internal documents from the Education Department that were obtained last month. Federal loans used to cover graduate school were also included as potential forgiveness targets.
Forgiveness could further target certain subsets of borrowers, experts say. Among those may be recipients of the Pell Grant, which are offered to those students with “exceptional financial need.” Sources told CNN the administration has discussed supplemental forgiveness for Pell Grant recipients but it’s uncertain if the White House will include this in their plan.
It is, ultimately, too soon to tell who exactly will be impacted by the announcement Biden is expected to make Wednesday. What is known is that any loan forgiveness from the federal government will most likely not cover private loans as those are not within the federal student loan system.
Regardless of whether the White House forgives your loans or not in the coming days, experts recommend being financially prepared to repay your debt. If the payment pause is extended, meaning scheduled payments and interest accrual are put on hold, you may still want to make payments on your loans.
Since taking office, the Biden administration has forgiven nearly $32 billion in federal student loans.