RICHMOND, Va. — Is President Joe Biden's recently-announced plan to forgive $20,000 in student loan debt for people who went to college on Pell grant and up to $10,000 in federal student loan debt for Americans who make less than $125,000 ''unfair" or a "win for all?" As is the case with most decisions made in Washington, Richmonders have mixed reactions.
When a White House reporter asked the President if his plan was fair to people who paid their student loans or chose not to take out loans, Biden replied "Is it fair to people who in fact do not own multi-billion dollar businesses to see one of these guys getting all the tax credits?"
When CBS 6 Problem Solver Melissa Hipolit showed Gordon McCormick the President's response, he seemed stunned.
"I think what he was trying to say was, 'well I am not going to try to address that," McCormick said.
McCormick took out loans to go to graduate school and recently paid them off.
He said Biden's plan to forgive $10,000 worth of student loans making under $125,000 dollars per year was unfair.
"I don't see it as fair at all," McCormick said. "I see it as a system where people like me who hustled to get that paid off are left scratching their head because maybe if I made that decision not to do that maybe I would be $10,000 richer right now."
And yet, McCormick feels for students and graduates buried in debt.
"It was either John Adams or Thomas Jefferson who said the two ways to conquer and enslave a nation is either by the sword or with debt and if you have a whole generation of people who are up to their eyeballs with college debt you're going to have a problem," McCormick said.
VCU graduate Marcus Floyd is still saddled with student loan debt.
"It's kind of like that ominous cloud over our head like I'm going to have to pay this off," Floyd said.
The campus minister said he is thrilled with the President's plan.
"Being able to have a little of that loan taken off helps me to be more generous with my finances as I continue with my vocation," Floyd said. "I think a win for some people is a win for all of us."
But CBS 6 political analyst Dr. Bob Holsworth, who works for VCU, said Floyd and others should not expect to see the loan reduction anytime soon.
Holsworth said he expected the loan reduction to be challenged in court.
"The question is what group or individual or entity can say they have been harmed by this policy and have the court say they have official standing to sue," Holsworth said.
Holsworth also said there is still more work to be done to help students.
"Just forgiving student debt really doesn't begin to address the whole issue of how to keep down the cost of higher education which has really spiraled out of control over the last 20 years," Holsworth said.
WHO QUALIFIES FOR STUDENT LOAN FORGIVENESS?
You qualify to have up to $10,000 forgiven if your loan is held by the Department of Education and you make less than $125,000 individually or $250,000 for a family. If you received Pell grants, which are reserved for undergraduates with the most significant financial need, you can have up to $20,000 forgiven. If you are a current borrower and a dependent student, you will be eligible for relief based on your parents' income, rather than your own. Click here for more information.
WILL THE STUDENT LOAN PAYMENT FREEZE BE EXTENDED?
The payment freeze will be extended one last time, until Dec. 31. The freeze started in 2020 as a way to help people struggling financially during the COVID-19 pandemic and it's been extended several times since. It was set to expire Aug. 31.
Interest rates will remain at 0% until repayments start. Under an earlier extension announced in April, people who were behind on payments before the pandemic automatically will be put in good standing.
HOW DO I APPLY FOR STUDENT LOAN FORGIVENESS?
Details of that have not been announced, but keep an eye on the federal student aid website for more details in the coming days.
DOES GRADUATE STUDENT DEBT QUALIFY?
Yes, federal student loans taken out to cover graduate degrees qualify for forgiveness.
WHAT IF MY STUDENT LOAN BALANCE INCLUDES A LOT OF INTEREST?
The interest itself is considered part of the balance for purposes of this program. Forgiveness will remove $10,000 from the total balance you owe.
WILL I HAVE TO PAY TAXES ON THE AMOUNT I’M FORGIVEN?
No. Congress eliminated taxes on loan forgiveness through 2025. It is possible some states could tax canceled debt, according to the nonprofit Tax Foundation, but it’s not clear yet if that will happen.
DO PARENT-PLUS LOANS QUALIFY?
Parent Plus loans are included in the forgiveness plan, subject to the same $250,000 income cap for families that applies to the rest of the cancellation.
Parent Plus loans differ from other federal education loans in that they can go towards covering expenses other than tuition, such as books, and room and board for college students. As of March 2022, parents of 3.6 million students owe more than $107 billion in Parent Plus loans, according to the Department of Education. That represents about 6% of the total amount of federal student debt held by Americans.
WHAT'S A PELL GRANT AND HOW DO I KNOW IF I HAVE ONE?
Roughly 27 million borrowers who qualified for Pell grants will be eligible to receive up to $20,000 in forgiveness under the Biden plan.
Pell grants are special government scholarships for lower-income Americans, who currently can receive up to $ $6,895 annually for roughly six years.
Nearly every Pell Grant recipient came from a family that made less than $60,000 a year, according to the Department of Education, which said Pell grant recipients typically experience more challenges repaying their debt than other borrowers.
Pell grants themselves don’t generally have to be paid back, but recipients typically take out additional student loans.
“This additional relief for Pell borrowers is also an important piece of racial equity in cancellation,” said Kat Welbeck, Civil Rights Counsel for the Student Borrower Protection Center. “Because student debt exacerbates existing inequities, the racial wealth gap means that students of color, especially those that are Black and Latino, are more likely to come from low-wealth households, have student debt, and borrow in higher quantities.”
To find out if you have a Pell grant, check any emails you've received that describe your FAFSA award.
HOW MANY PEOPLE WILL THIS HELP?
About 43 million Americans have federal student debt, with an average balance of $37,667, according to federal data. A third of those owe less than $10,000. Half owe less than $20,000. The total amount of federal student debt is more than $1.6 trillion.
WHAT IF I’VE ALREADY PAID OFF MY STUDENT LOANS — WILL I SEE RELIEF?
The debt forgiveness is expected to apply only to those currently holding student debt. But if you’ve voluntarily made payments since March 2020, when payments were paused, you can request a refund for those payments, according to the Federal Office of Student Aid. Contact your loan servicer to request a refund.
WILL STUDENT LOAN FORGIVENESS DEFINITELY HAPPEN?
The White House could face lawsuits over the plan, because Congress has never given the president the explicit authority to cancel debt. The Biden administration is tying its authority to the coronavirus pandemic and to a 2003 law aimed at providing help to members of the military. We don't know yet how any legal action might impact the timetable for student loan forgiveness.
WHAT REPAYMENT PLAN IS THE DEPARTMENT OF EDUCATION PROPOSING?
The Department of Education has proposed a repayment plan that would cap monthly payments at no more than 5% of a borrower’s discretionary income, down from 10% now. Borrowers will need to apply for the repayment plan if it’s approved, which could take a year or more.
For example, under the proposal, a single borrower making $38,000 a year would pay $31 a month, according to a government press release.
The amount considered non-discretionary will also be increased, though the department has not said how much.
Discretionary income usually refers to what you have left after covering necessities like food and rent, but for student loan repayment purposes it’s calculated using a formula that takes into account the difference between a borrower’s annual income and the federal poverty line, along with the family size and geographic location.
“What’s tough about income-driven repayment is that it does not take into account your other liabilities, such as your rent payment,” said Kristen Ahlenius, a financial counselor at Your Money Line, which provides financial literacy training. “If someone’s living paycheck to paycheck and their rent is taking up half of their paycheck and then their car payment takes the other, they have to choose. Unfortunately, income-driven repayment doesn’t take that into consideration, but it is an option.”
Student Debt Relief offers a calculator to help determine your discretionary income.
WHAT IF I CAN’T AFFORD TO PAY EVEN WITH LOAN FORGIVENESS?
Once payments resume, borrowers who can’t pay risk delinquency and eventually default. That can hurt your credit rating and mean you're not eligible for additional aid.
If you’re struggling to pay, check if you qualify for an income-driven repayment plan. You can find out more here.
The plan Biden announced Wednesday also includes a proposal that would allow people with undergraduate loans to cap repayment at 5% of their monthly income. Proposals like this one can take a year or more to be implemented, and it's not clear what the fine print will be.
If you have worked for a government agency or a non-profit organization, you could also be eligible for the Public Service Loan Forgiveness Program, which you can read more about here.
The Associated Press contributed to this report.
