A decision on federal student loan forgiveness is expected any day now. Here’s what to know:
MICHIGAN—As many as 1.4 million Michiganders who are shouldering student loan debt could see thousands of dollars erased under a broad student loan forgiveness package, expected to be announced from the White House as early as Wednesday afternoon.
For Michigan, the impact could be huge.
What’s the situation?
Federal student loans have been essentially paused for about 41 million borrowers—including an estimated 1.4 million people in Michigan—since the pandemic hit in March 2020. That means indebted students, graduates and dropouts haven’t had to pay a dime on those loans for more than two years. The interest that would normally accumulate on those loans has also been suspended.
The pause in repayments was initially designed to cut borrowers a break during the pandemic, but since then, President Joe Biden made broader student loan forgiveness a key part of his political platform. And millions of borrowers nationwide are leaning on him to follow through with action before federal student loan repayments (and their interest rates) kick back into full gear on Sept. 1, 2022.
What’s the latest?
Biden—who repeatedly called for student loan forgiveness of at least $10,000 per person on the campaign trail in 2020—has been mulling a decision on how to roll out the plan for the last several months. And sources familiar with the matter said the White House is expected to finally release the forgiveness plan on Wednesday, according to recent reports from the Washington Post.
What could happen?
White House officials have reportedly been leaning toward a package that would forgive $10,000 of student loan debt for borrowers who earn less than $125,000 or $150,000 per year—with that threshold doubled for married couples who file their taxes jointly. It’s unclear whether the administration would also require interest and payments to resume in September, or if they’ll remained paused.
What would that mean for Michigan?
About one in seven Michiganders has an outstanding federal student loan, with an average balance of $36,295, according to reports from Bridge Michigan. The Washington Post published estimates that show wiping out $10,000 of that debt for all borrowers could forgive $321 billion and eliminate student debt for one in three Americans—and as many as 417,000 in Michigan, MLive reports.
US Census data lists the median household income in Michigan at just less than $60,000—meaning that a vast majority of the state’s residents would qualify under potential income restrictions of $125,000.
Both students and parents of students who took out loans could see forgiveness. In Michigan, about 48% of existing student loans are among people age 35 or older, Bridge Michigan reports. About 21% of Michigan borrowers owe between $20,000 and $40,000; another 14% owe less than $5,000.
Officials have also reportedly discussed the possibility of additional forgiveness for certain subsets of borrowers—like Pell Grant recipients. Some lawmakers have pushed Biden to remove income limits and cancel up to $50,000. No concrete details on the proposal have been officially announced.
What would that do for Michiganders?
In addition to lightening the financial load for hundreds of thousands of Michiganders who are struggling to repay their loans, some analysts have suggested that student debt relief could serve as a broader stimulus for the economy. Put simply: Borrowers would have more cash to spend on other things.
Mountains of unsustainable student debt have forced an entire generation of Americans to rethink their major life decisions—like whether to have kids, start a business or purchase a home or new car, NPR reports. If the debt is lifted, economists have suggested that cash would flow back into the economy.
Experts described the potential relief to Fortune as “one of the largest transfers of wealth in American history” and noted that it would have a positive impact on the economy—albeit with a lower bang for the buck compared to other efforts to promote economic growth. Some critics of student loan cancellation have argued that it doesn’t address the root cause of the problem, since future generations will simply accumulate more debt as higher education costs continue to surge. This is a point worth noting, and supporters of cancellation broadly agree that the exorbitant cost of education needs to be addressed.
Their counterargument can perhaps best be summed up as “why not both?” Why not help people who are suffering now, and prevent people from suffering in the future? Others are concerned that loan relief could have the inverse effect of spiking inflation rates—depending on the shape of the package.
What do the people want?
In whatever form, most Americans want to see relief from student loans. It’s something that 58% of Americans support, according to the latest Courier Newsroom/Data for Progress poll. Support for keeping payments paused was also particularly high among voters under age 45—with about two-thirds saying they supported a longer break on repayments, and only 37% of respondents opposing the idea.
Of that 58% majority of voters who support the pause on student loan repayments continue nationwide, well over half of them also wanted to see the moratorium extended indefinitely, or for at least a year.
The margin of support for cancelation of federal student loan debt was even higher—with 58% of voters supporting some amount of debt cancelation, including 45% who support canceling at least $25,000.
Again, voters under 45 were especially supportive of canceling federal student debt.
That already-strong level of support climbed even higher when voters were asked if they supported debt cancellation for middle- and low-income borrowers. Sixty-three percent of voters said they supported a concept similar the latest White House plan to cancel at least $10,000 in debt for these populations.
What has already been done?
So far, Biden has canceled more student debt than any other president—nearly $32 billion, largely for borrowers who were defrauded by for-profit colleges and for permanently disabled borrowers.
We wait for an announcement. Check back for more details as they become available.