President Joe Biden has announced his long-awaited plan to deliver on his campaign promise to provide 10,000 dollars (£8,500) in debt cancellation for millions of Americans.
Borrowers who earn less than 125,000 dollars a year, or families earning less than 250,000 dollars, would be eligible for the 10,000 dollars loan forgiveness, Mr Biden announced in a tweet.
For recipients of Pell Grants, which are reserved for undergraduates with the most significant financial need, the federal government would cancel up to an additional 10,000 dollars in federal loan debt.
In keeping with my campaign promise, my Administration is announcing a plan to give working and middle class families breathing room as they prepare to resume federal student loan payments in January 2023.
I'll have more details this afternoon. pic.twitter.com/kuZNqoMe4I— President Biden (@POTUS) August 24, 2022
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Mr Biden is also extending a pause on federal student loan payments for what he called the “final time” through the end of 2022.
If his plan survives legal challenges that are almost certain to come, it could offer a windfall to a swath of the nation in the run-up to this autumn’s midterm elections.
More than 43 million people have federal student debt, with an average balance of 37,667 dollars, according to federal data.
Nearly a third of borrowers owe less than 10,000 dollars, and about half owe less than 20,000 dollars. The White House estimates that Mr Biden’s announcement would erase the federal student debt of about 20 million people.
Proponents say cancellation will narrow the racial wealth gap — black students are more likely to borrow federal student loans and at higher amounts than others.
Four years after earning bachelor’s degrees, black borrowers owe an average of nearly 25,000 dollars more than their white peers, according to a Brookings Institution study.
Still, the action is unlikely to thrill any of the factions that have been jostling for influence as Mr Biden weighs how much to cancel and for whom.
Mr Biden has faced pressure from liberals to provide broader relief to hard-hit borrowers, and from moderates and Republicans questioning the fairness of any widespread forgiveness.
The delay in Mr Biden’s decision has only heightened the anticipation for what his own aides acknowledge represents a political no-win situation.
The continuation of the coronavirus pandemic-era payment freeze comes just days before millions of Americans were set to find out when their next student loan bills will be due.
This is the closest the administration has come to hitting the end of the payment freeze extension, with the current pause set to end August 31.
Details of the plan have been kept closely guarded as Mr Biden weighed his options. The administration said on Wednesday the Education Department will release information in the coming weeks for eligible borrowers to sign up for debt relief.
Cancellation for some would be automatic, if the department has access to to their income information, but others would need to fill out a form.
Current students would only be eligible for relief if their loans were originated before July 1, 2022. Mr Biden is also set to propose capping the amount that borrowers pay monthly on undergraduate loans at 5% of their earnings.
