MR. HASAN: Hi, everyone, this is Abdullah from the White House. Thanks for joining today’s background briefing on the student loans announcement. As you may have seen just before this call, the President will have more to say on this at 2:15 p.m. today.
As a reminder, this call is on background and attributable to a senior administration official. There is no embargo.
For your awareness but not for reporting purposes, joining us for the call today are [senior administration official] and [senior administration official].
With that, I will turn it over to [senior administration official].
SENIOR ADMINISTRATION OFFICIAL: Hi. Good morning, everyone. Thanks for joining us today. We wanted to provide some background and walk you through the plan that the President recently announced.
President Biden believes that a post-high school education should be a ticket to a middle-class life. But for too many, the cost of borrowing for college is a lifelong burden that deprives them of that opportunity.
During the campaign, the President promised to provide targeted student debt relief. And today, the Biden administration is following through on that promise with a plan that will benefit tens of millions of middle-class Americans, their families, and the economy as a whole.
Over the last 40 years, the total cost of both four-year public and four-year private colleges have nearly tripled, even after accounting for inflation. At the same time, federal support has not kept up. Pell Grants once covered nearly 80 percent of the cost of a four-year public college degree, but now they only cover a third.
All of this has left many students from low- and middle- income families with no choice but to borrow if they want to get a degree.
This skyrocketing federal student loan debt burden — $1.6 trillion and rising — for more than 45 million borrowers is a financial weight on America’s middle class. Middle-class borrowers struggle with high monthly payments and ballooning balances that make it harder for them to build wealth. Larger student debt burdens make it harder for people to buy homes or put money away for retirement. It also makes it harder for borrowers to start small businesses because many entrepreneurs rely on their personal wealth to get their businesses off the ground.
And for the most vulnerable borrowers, the effect of debt are even more crushing, with one in six borrowers in default and many unable to complete their degree because the cost of attendance was too high.
The burden falls disproportionately on Black borrowers. According to one analysis, Black borrowers 20 years after taking on the debt still owe 95 percent of their original student loan debt.
Today, President Biden is taking action to lift a large weight off of tens of millions of Americans by relieving student loan debt and reforming our student loan system as a whole.
This announcement has three major parts, and it offers targeted debt relief to lower- and middle-income families as part of a comprehensive effort to address growing college costs.
I will describe the first two parts and then turn it over to my colleague to describe the third.
First is debt cancellation. The administration will provide $20,000 in debt relief to borrowers who received Pell Grants while they were in college. To qualify, a borrower must make less than $125,000, or $250,000 if they are part of a household. Borrowers who are not Pell Grant recipients but who meet those income thresholds will be eligible to receive $10,000 in relief.
It is really hard to overstate how significant this is for America’s middle class and for our economy. This announcement will help people who, by and large, came from working families and are working class now.
If all borrowers claim the relief that they’re entitled to, 43 million federal student loan borrowers will benefit. And of those, 20 million will have their debt completely canceled.
This plan distributes relief highly progressively. Among borrowers who are no longer in school, nearly 90 percent of relief dollars will go to those earning less than $75,000 a year, and no one in the top 5 percent of incomes in America will get a single dollar of relief.
Also, by targeting relief to borrowers with the highest economic need, this plan helps narrow the racial wealth gap. That’s in part because Black students are more likely to have to borrow for school, more likely to take out larger loans, and more likely to have received Pell Grants.
Even before applying the additional $10,000 for Pell Grant recipients, the typical Black borrower will see their balance cut nearly in half, and more than one in four Black borrowers will see their balance forgiven altogether.
And then, on top, adding relief for Pell Grant recipients will go a long way to promoting equity because Black borrowers are twice as likely to be Pell Grant recipients as their white peers.
Current students with loans are eligible for this debt relief. Dependent students will be eligible for relief based on their parental income rather than their own income.
And to ensure a smooth transition to repayment and prevent unnecessary defaults, the administration will be extending the pause on federal student loan payments one final time through December 31, 2022.
By combining targeted relief with a restart in payments, the President is taking one step that has a negative fiscal impulse — collecting more payments from borrowers — and one step that has a positive fiscal impulse — offering debt relief to borrowers most in need.
In terms of an impact on inflation relative to today, our view is that those steps largely offset. There are certain conditions and assumptions under which they could well be neutral or deflationary.
With that, I’m going to turn it over to [senior administration official] to talk about the other components of the plan.
SENIOR ADMINISTRATION OFFICIAL: Thank so much. As [senior administration official] said, in addition to providing immediate cancellation, the administration is making the student loan system more manageable for current but also future borrowers.
Fist, the department will reform something called the income-driven repayment system. The Department of Education has authority to create income-driven repayment plans, which cap what borrowers pay each month based on a percentage of their discretionary or disposable income. Most of these plans cancel a borrower’s remaining debt once they make 20 years of monthly payments.
But the existing versions of these plans are too complex and too limited. And as a result, millions of borrowers who might benefit from them do not sign up, and the millions who do sign up are still often left with unmanageable monthly payments.
So that’s why the President will announce proposed reforms to income-driven repayment so that both current and future low- and middle-income borrowers will have smaller monthly payments.
The proposed rule for undergraduate loans would cut in half the amount that borrowers have to pay each month from 10 percent to 5 percent of discretionary income. They’ll also raise the amount of income that is considered non-discretionary and therefore protected from repayment, guaranteeing that no borrower earning under 225 percent of the federal poverty level, which is about the annual equivalent of a $15 minimum wage for a single borrower, will have to make a monthly payment.
Further, for borrowers with loan balances of $12,000 or less, the proposed rule will forgive loan balances after 10 years of payments instead of 20 years.
And unlike existing income-driven repayment plans, this plan would cover the borrower’s unpaid monthly interest so that borrowers’ loan balance won’t grow as long as they make their monthly payments.
These reforms will deliver significant savings to low- and middle-income borrowers. For example, a typical single construction worker making $38,000 a year with a construction management credential would pay only $31 a month compared to the $147 they pay now under the most recent income-driven repayment plan. That would give them an annual savings of nearly $1,400.
And starting in the summer of 2023, borrowers will be able to allow the Department of Education to automatically pull their income information year after year, avoiding the hassle of needing to rectify their income annually. Once a borrower is enrolled, it will be much easier to stay enrolled and receive credit that they’re due.
Second, the Department of Education is also making changes to the Public Service Loan Forgiveness — or the “PSLF” — program that builds off of shorter-term changes that make it easier for borrowers working in public service to gain progress towards loan forgiveness.
Borrowers working in public service are entitled to earn credit towards loan forgiveness under PSLF, but because of complex eligibility restrictions, historic implementation failures, and poor counseling given to borrowers, many public service servants have not received the credit they deserve for their public service.
The Department of Education also proposed regulatory changes to ensure more effective implementation of the PSLF program moving forward. Specifically, the Department of Education has proposed allowing more payments to qualify for PSLF, including partial lump sum and late payments.
The proposed rule also allows certain kinds of deferments and forbearances — such as those for Peace Corps and AmeriCorps service, National Guard duty, and military service — to count towards PSLF. And it proposes to change the program so that it works better for nontenured instructors whose colleges need to calculate their full-time employment.
In the short term, the Department of Education has announced time-limited changes to PSLF that provide an easier path to forgiveness. Those who serve less than 10 years can now more easily get credit for their service to date towards eventual forgiveness.
These changes allow eligible borrowers to gain additional credit towards forgiveness even if they’ve been previously denied.
To ensure borrowers are aware of the temporary changes, the White House has launched four PSLF days of action dedicated to borrowers in specific sectors: government employees, educators, healthcare workers, first responders, and nonprofit employees. Today is the first day of action.
Additionally, the Department of Education has already taken significant steps to strengthen accountability so that students are not left with mountains of debt with little payoff. The agency has reestablished the enforcement unit in the Office of Federal Student Aid, and it is holding accreditors’ feet to the fire. In fact, the department just withdrew authorization for the accreditor that oversaw schools responsible for some of the worst for-profit scandals.
The agency will also propose a rule to hold career programs accountable for leaving the graduates with mountains of debt that they cannot pay — a rule the previous administration repealed.
Building off of these efforts, the department is announcing new actions to hold accountable colleges that have contributed to the student debt crisis, including publishing an annual watch list of the programs with the worst debt levels in the country, so that students registering for programs in the next academic year can steer clear of programs with poor outcomes.
It is also requesting institutional improvement plans from the worst actors that outline how the colleges with the most concerning debt outcomes intend to bring down debt levels.
The President believes that when we strengthen the middle class of the country, everyone benefits. And that’s what these policies do. It provides a little bit more financial security for millions of lower- and middle-income Americans.
And with that, I’ll turn it back to Abdullah. Thanks so much.
MR. HASAN: Thank you. We’ll go ahead to Chris Megerian for the first question.
Chris, you should be unmuted now.
Q Okay, here I am. So, a question about future college students. What impact will this have on students who are currently in high school and are going to be starting — you know, taking out lots of debt to be starting college soon? And also, can you specify the impact on Parent PLUS loans — basically, loans that parents are still paying off for their college graduates?
SENIOR ADMINISTRATION OFFICIAL: So, Parent PLUS loans held by the Department of Education are included in the cancellation policy that [senior administration official] described.
In terms of future students, two things. As I laid out at the end there, there’s policies that are designed to help reduce the cost of college, including increasing Pell, and the President has proposed moving forward to double the maximum Pell Grant.
And the — all of — the proposal related to income-driven repayment would apply to future loans. So it will reduce the amount a borrower must pay on undergraduate loans from 10 to 5 percent of their monthly income. And again, if they’re low income, it protects — under the definition of discretionary income, it protects a higher level of income. So some borrowers could have a zero payment, depending on what their income is.
MR. HASAN: Great. Thank you. For the next question, we’ll go to Jeremy Diamond.
Q Hey, thanks for doing this. First of all, on the inflation concerns, I know that you guys said that you believe that these steps will largely offset each other, but do you just dismiss, out of hand, concerns from several Democratic economists like Larry Summers and Jason Furman? And is there any circumstance under which you think that this will increase inflation?
And then, secondly, just on the decision-making front, you know, this is something that the President has been considering for a really long time now, it seems. And so I’m wondering, you know, why it took so long.
And there also seems to have been a significant 11th-hour push to get the President to go further, and I wonder if you guys could take us into that process over the last week.
SENIOR ADMINISTRATION OFFICIAL: Sure. So, on the inflation question, our view is that the combination — so if we — relative to where we sit today, which is that federal student loans are paused and that — and 45 million borrowers are under no obligation to make any payments to the government, the combination of restarting those loans — those loan payments — and providing targeted debt relief per the President’s plan at roughly the same time will largely offset each other. That’s our view.
And also, frankly, with certain fairly reasonable assumptions — because there’s a lot of assumptions that go into this kind of analysis — the joint impact of those two actions could well be neutral or deflationary.
And I would just note that a number of independent experts have echoed this point. As you noted, there’s some people who take the opposite view, but Moody’s, Roosevelt, EPI, Center for American Progress, others who have discussed, you know, a plan with this sort of general outline — a combination of restarting student loan payments and providing targeted debt relief — have come to the same conclusion.
MR. HASAN: Great. And then, for the next question, we can go to Cheyenne Haslett.
Q Hi, thank you. Can you clarify which tax year for income — whether it’s 2021 or 2022? And can you also clarify how exactly, going forward, the monthly income payments will be — you know, whether that will be taken on by taxpayers or how cutting down on that will affect the cost of this plan?
SENIOR ADMINISTRATION OFFICIAL: I can take the first. And, [senior administration official], maybe you can take the second?
For the purposes of the immediate debt relief, a borrower’s income in either the 2020 or 2021 tax year is what’s relevant. So, in other words, if in either 2021 or 2020 their income was below the income caps that have been described, they would be eligible for relief.
SENIOR ADMINISTRATION OFFICIAL: Sorry, I had a little — audio.
So, on the IDR, the costs of that program are spread out over time. It depends on how much outstanding debt is forgiven at the end of the repayment period, but borrowers will be making reduced payments on an annual basis. And in the — if they have outstanding loans at the end of the 20-year period and 10-year period for under $12,000, that amount of fund- — debt will be forgiven. Some of those debts may not have been recuperated because people have gone into default. So it’s a fairly complicated process for determining the cost implications.
MR. HASAN: Thanks, [senior administration official]. And then for the next question, let’s go to Asma.
Q Hi, guys. It’s Asma from NPR. Thank you all so much. I think this was a question that actually Jeremy had asked earlier — I don’t believe it was answered — which is that there were certainly — there was certainly a desire from some Democrats to go larger. And can you help us understand the process of how the President settled on this 10k threshold for most borrowers — 20k, obviously, for Pell Grant recipients? But how was this settled upon — given that I know there was a desire, certainly even this week — to go larger than that?
SENIOR ADMINISTRATION OFFICIAL: So I just want to clarify something, Asma: that 60 percent of borrowers have Pell Grants. So actually, the majority of borrowers are eligible for 20k in relief, and the remainder are eligible for the $10,000 in relief. So I think that’s an — that’s an important clarifying point.
And it honestly reflects — if you look at who Pell Grant recipients are, about half of them come from families that make under $30,000 a year and roughly the other half of
them come from families that make between $30- and $60,000 a year. And collectively, those Pell Grant recipients make up about 60 percent of student loan borrowers.
So that just emphasizes, to me at least, how, you know, the vast majority of borrowers — or a strong majority of borrowers are folks who come from lower-income, middle-income families.
In terms of the process: Look, the President made a commitment during the campaign. He said, you know, he was going to provide $10,000 in relief. And over the past months, we’ve been going through the process that the President asked us to go through — examining the legal authority, looking at different permutations of this proposal — all with the goal of figuring out how do we provide relief to the people who really need it. And that’s — this is a product of the plan that we arrived at.
We think it does a very good job of, number one, targeting relief to lower-income, middle-income borrowers. As I said, nearly 87 — nearly 90 percent of the relief dollars here go to people making under $75,000 a year, while not a single dollar goes to anybody in the top 5 percent of incomes. And by targeting additional money to Pell Grant recipients, we are recognizing that not just income, but wealth plays a really important role in the capacity of borrowers to repay. And because Pell Grant recipients tend to come from lower-wealth families, providing them with additional relief is a way of really targeting relief at those who need it.
So that’s the basic decision-making process.
MR. HASAN: Thanks, [senior administration official]. For the last question, let’s go to Andrew Restuccia.
Q I’m sorry about that. Can you just to get into the legal justification for this cancellation a little bit more? It sounds like the administration released a memo laying it out, and it’s based on pandemic authority. Can you explain how — you know, why it’s based on pandemic authority when, you know, the conditions in the economy and other — and also health conditions of the country have been improving?
SENIOR ADMINISTRATION OFFICIAL: Yeah, look, my — I’m not a lawyer. So I’m — my instinct is to defer — for you guys to take a look at the written document that goes through this and to follow up with either the Education Department or DOJ if you have any questions on that.
MR. HASAN: All right, we’ll take one final question. And we’ll go to Lauren Egan.
Q Hi. Could you clarify the income cap? Do you qualify if you make as much as $125,000 a year or do you have to be under that? And then can you speak a little bit to what borrowers have to do, if anything, to get this cancellation and when people can start to see this reflected in their balances?
SENIOR ADMINISTRATION OFFICIAL: Sure. So, the income cap is under $125,000.
In terms of the process here, the Education Department is going to be releasing additional details in the coming days and weeks. Some borrowers are going to have to submit essentially a simple application that goes to their income and shows that they would meet the income caps that have been set out in this plan.
It’s also the case that a certain percentage of borrowers — I think roughly 8 million borrowers — have already submitted relevant income information on file to the Education Department through other means. And those folks may — who qualify under the income cap — may be able to receive debt relief automatically.
But I’d refer you to the Education Department for further implementation details.
MR. HASAN: All right. Thank you everyone for joining today’s call.
As a reminder, it is on background, attributable to “senior administration officials.” No embargo.
You should have, during the call, received a factsheet from the White House as well, (inaudible) look at that. And thanks again for joining.