WASHINGTON - United States President Joe Biden announced on Wednesday (Aug 24) a plan to strike off US$10,000 (S$14,000) in student debt for low- to middle-income borrowers, partially fulfilling a campaign promise in what could be a boost to Democrats ahead of November's mid-term elections.
The move will provide relief for up to 43 million Americans, the large majority of whom make less than US$75,000 a year. They must earn less than US$125,000 a year to be eligible for this debt relief, ruling out the top 5 per cent of income earners in the US.
While the plan could assist Democrats in their fight to retain control of the House of Representatives and Senate, it has also been criticised by different sides on different grounds: Republicans say it is too much, some advocates of student debt relief believe it is too little, and some economists are concerned it may fuel inflation.
Mr Biden will also extend an ongoing pause on federal student loan payments, first started by the Trump administration during the pandemic, until the end of the year. Other reforms include lowering monthly repayments, particularly for those making minimum wage.
The US President, who had promised during his run for the top office to forgive all undergraduate student loan debt from public colleges and universities, stressed the targeted nature of his proposals.
"These targeted actions are for families who need it the most: working and middle class people hit especially hard during the pandemic," he said in public remarks at the White House.
Recipients of Pell Grants, which are federal scholarships given to students in financial hardship, will have up to US$20,000 cancelled.
The Biden administration estimated that the proposals would cancel the full remaining balance for roughly 20 million borrowers.
"That's 20 million people who can start getting on with their lives," said Mr Biden. "People can start to finally crawl out from under that mountain of debt. To get on top of their rent and utilities. To finally think about buying a home or starting a family or starting a business."
The White House also argued it would narrow the racial wealth gap, given that Black students are more likely to have to borrow for college and to take out larger loans.
Republicans slammed the plan as inflationary and argued that the burden of student debt would be passed on to taxpayers.
Senate minority leader Mitch McConnell called the plan "astonishingly unfair", adding that it was "a slap in the face to every family who sacrificed to save for college, every graduate who paid their debt".
Others also questioned whether Mr Biden has the authority to cancel student debt in such a manner, and analysts said the plan will face legal challenges.
Student loan relief and reform has risen to the fore of political agendas to become an emotional and financial debate in America, where 45 million people hold a total of US$1.6 trillion in student debt.
The crisis has ballooned over the years, driven by the spiking costs of college tuition, which far outstrip inflation and income growth, and relatively few restrictions on the amount students can borrow.
Duke University assistant professor of public policy Mallory SoRelle said the Biden administration's decision was consistent with broad public support for student loan debt forgiveness.
"While the substantive relief for borrowers will be considerable, the political benefits for Biden and congressional Democrats are less clear," she said.
She said her research showed that most core Democratic voters were more likely to prefer and to reward policymakers who support debt cancellation of US$50,000 or more.
"That said, this marks another in a growing list of campaign promises that Biden can credibly say he has accomplished. And many people will realise its benefits in concrete ways and understand who is responsible for them - key ingredients for reaping political rewards from a policy," Dr SoRelle said.