Biden’s American Families Plan Does Not Forgive Student Loans

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By Mark Kantrowitz

April 29, 2021

President Biden proposed $1.8 trillion in financial relief for American families in a joint session of Congress on April 28, 2021, but the proposal does not include any student loan forgiveness.

The American Families Plan provides more than $300 billion in new financial support for higher education. But, it doesn’t forgive any of the $1.7 trillion in student loan debt outstanding, as many borrowers had hoped it would.

Why Loan Forgiveness Was Omitted

President Biden is facing mounting pressure from progressives to forgive student loan debt through executive action.

But, President Biden does not believe he has the legal authority to do this. He’s asked the U.S. Department of Education and the Justice Department to issue a report concerning the executive branch’s legal authority to forgive up to $50,000 in student loans per borrower.

Until this report is issued, there is unlikely to be any action on student loan forgiveness. If the report finds that the President does not have the authority to forgive student loans through executive action, Congress will need to act. The cost of student loan forgiveness may force Congress to limit eligibility for loan forgiveness and the amount of loan forgiveness per borrower.

Federal student loans are eligible for the payment pause and interest waiver through September 30, 2021. Borrowers who expect to qualify for forgiveness can hold off on making payments until the relief period ends. Private student loans are not eligible for federal relief, but borrowers may be able to save money by refinancing to a new loan with a lower interest rate.

President Biden’s Proposal Does Reduce Student Loan Debt

Nevertheless, the American Families Plan will reduce future student loan debt by providing free community college tuition and a $1,400 increase in the maximum Federal Pell Grant.

The average tuition and fees at community colleges is about $2,000 per year. A $1,400 increase in the maximum Federal Pell Grant will increase the average Federal Pell Grant by about $900. This might reduce the average student loan debt at graduation for Pell Grant recipients by about $2,900 for a Certificate, $5,800 for an Associate’s degree and $3,600 for a Bachelor’s degree.

DREAMers would be eligible for the Federal Pell Grant for the first time, as well as the free community college tuition and fees.

The American Families Plan will also provide two years of subsidized tuition for low- and middle-income students at 4-year HBCUs, TCUs and MSIs.

The proposal doubles the TEACH Grant, from $4,000 per year to $8,000 per year. As with the current TEACH Grant program, recipients must commit to teaching in a national need area for four of the eight years after graduation.

Prospects for Passage

The cost of the American Families Plan will involve an increase in taxes on taxpayers who earn more than $400,000 per year. It will also eliminate certain loopholes used by the wealthy.

The legislation is unlikely to win Republican support because it increases taxes, even though it reduces taxes on low- and middle-income families.

Passage will require support from every Democrat and Independent Senator, if they bypass the possibility of a filibuster through budget reconciliation or other means.

The Senate requires a 60-vote supermajority to cut off debate, so Republicans can use a filibuster to block passage. However, a budget reconciliation bill requires just a simple majority, with Vice President Harris casting the tie-breaking vote. Since every vote will be needed, each member of the Democratic caucus effectively gets a veto on any aspect of the legislation that they don’t support.

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