Biden issues student debt relief; legal challenges likely; rural areas have higher debt rates; see state-level statistics

President Biden announced today that he's canceling $10,000 in student loan debt for individuals who earn $125,000 or less per year or who live in households that earn $250,000 or less. He is also "extending a pause on payments for all borrowers until Dec. 31, capping months of anticipation over a campaign promise to provide economic relief to millions of people," The New York Times reports. Also, there is "$10,000 of debt forgiveness for students who received Pell grants in college, focusing the additional aid on people from lower-income backgrounds." Legal challenges are likely.

Though rural areas tend to have lower college-graduation rates than metro areas, student debt is a critical issue for many rural Americans. "Recent estimates indicate that 6.5 million people in rural areas across the country each owe an average of $35,000 in student loan debt, and that as many as 1.1 million rural student loan borrowers (nearly one-in-six rural borrowers) have fallen into delinquency or default (compared to roughly one-in-seven student-loan borrowers nationwide)," according to the Student Borrower Protection Center, a nonprofit that advocates debt relief. 

"Moreover, the student debt crisis is hitting rural states the hardest. For example, borrowers in the five states with the highest proportion of residents that live in rural areas (Wyoming, Vermont, Montana, Mississippi, and South Dakota, as defined by the U.S. Department of Agriculture) have a 3-year federal student loan cohort default rate that is over 25 percent higher than that of borrowers in other states (using an average weighted by the number of borrowers in the state, 12.3 percent v. 9.2 percent)." Here's a list of rural student debt data for each state, as of December 2020, from SBPC.

The Biden administration says that 90% of the announced debt relief will go to households that earn $75,000 a year or less. However, the move will likely face legal challenges, so it's unclear when or if it will go into effect, the Times reports: "On its face, the move could cost taxpayers about $300 billion or more in money they effectively lent out that will never be repaid. But the true cost is harder to calculate, and smaller, because much of that debt was unlikely to ever be repaid. More than 8 million people — one in five borrowers with a payment due — had defaulted on their loans before the coronavirus pandemic. Many of those people carried fairly small balances and will now be eligible to have their loans canceled."

The plan "reduces the maximum monthly payment amount from 10% of income to 5% and guarantees that individuals with incomes under 225% of the federal poverty level do not make a monthly payment," reports Ashley Spalding of the Kentucky Center for Economic Policy. "In addition, as long as those required to make payments do so every month, interest will not accrue."

The issue has been hotly argued for months; some oppose relief, saying it's unfair to those who have paid off loans or are current on them. Senate Minority Leader Mitch McConnell called it "a slap in the face to every family who sacrificed to save for college, every graduate who paid their debt, and every American who chose a certain career path or volunteered to serve in our armed forces in order to avoid taking on debt." Some moderate Democrats on the ballot this fall also came out against it, "a sign of fears that it could alienate swing voters in November," reports Josh Kraushaar of Axios.

Others say $10,000 isn't enough, and still others say it's more important to reduce or eliminate interest, noting that many have paid off the principal many times over, but still owe as much or more than they started with because of interest, the Times reports. Still, the measures will help many. Some 33% of Americans with student loan debt owe $10,000 or less, The Washington Post reports: "Economists at the Federal Reserve say borrowers with the least amount of debt often have difficulty repaying their loans, at times because they did not complete a degree. Conversely, people with the highest loan balances are often current on their payments likely because of their higher education levels and associated earning power."