President Joe Biden announced on Aug. 24 a widely anticipated and controversial plan to cancel student loan debt for borrowers earning less than $125,000 per year, move that could affect tens of thousands New Jerseyans.
Biden also extended a pandemic-era pause on student loan payments until the end of December, which means those payments resume starting in 2023.
According to figures released this spring by the Education Data Initiative, New Jerseyans hold $42.5 billion in student loan debt. In total, nearly 1.2 million student borrowers live in the state with an average of $35,434 in debt, meaning that 12.9% of state residents have student loan debt.
Notably, 59.5% of those debtholders are under the age of 35. Of those borrowers, 15.2% owe less than $5,000, while 22.9% owe between $20,000 to $40,000 (average $28,198) with 2.3% owing more than $200,000.
The federal data does not break the borrowers by income, which is at the center of the Biden plan.
And just days before Biden’s announcement, WalletHub released a report on the states with the most and least student debt with New Jersey ranking 11th in the report. In that study, New Jersey had the second highest unemployment rate for people aged 25 to 34.
“For many who have long postponed buying their first home, opening a small business, or even starting a family because of their student debt, today’s announcement will make a profound difference and help unleash the economic potential of thousands of student borrowers in New Jersey and millions across the country,” said U.S. Sen. Bob Menendez, D-N.J., in a statement. “While this is not the full cancellation amount I have advocated for, I do urge the Biden Administration to seize this opportunity to develop and implement a unified plan for improving federal student loan programs.”
“Today is a historic day for graduates, undergrads and future students to be,” Gov. Phil Murphy wrote on Twitter. “@POTUS has officially put in motion federal student loan relief that will help about 1.2 million New Jerseyans & provide a light at the end of the tunnel for many student loan borrowers in our state.”
In announcing the move, Biden cited the increasing financial burden of pursuing an education beyond high school. “The total cost to attend a four-year university has tripled in 40 years,” the president said. “Instead of properly funding public colleges, many states have cut back their support.”
Across the country, some 45 million people owe more than $1.5 trillion for federal student loans.
The actions announced by Biden will forgive $10,000 in outstanding federal student loans for those making under that $125,000 income threshold. While lower-income students who received Pell Grants would be eligible for $20,000 in debt forgiveness.
Biden noted that Pell Grants have been a key way for the federal government to help lower-income families afford college costs and said they had used to cover a significant percentage, but now cover about one-third of the cost. Pell Grant recipients are more than 60% of the borrower population. The Department of Education estimates that roughly 27 million borrowers will be eligible to receive up to $20,000 in relief.
The plan also called for overhauling the loan system for current and future borrowers by making some reforms including cutting monthly payments in half via a new income-driven repayment plan that caps payments at 5% of a borrowers discretionary income, by fixing the Public Service Loan Forgiveness (PSLF) program by proposing a rule that borrowers who have served the public to receive appropriate credit toward loan forgiveness and by increasing Pell Grant funding while holding schools accountable when they hike up prices.
A law signed by Gov. Phil Murphy in July aims to protect students from unreasonably high tuition rates that would be difficult to repay based on the wages they are likely to earn. Click here to read the story.
The president reflected on a personal story of his father being unable to cover his college costs and his father being so ashamed because he believed, as Biden says he does, that education was the ticket to a better life.
“Over time, that ticket has become too expensive for too many Americans,” said Biden. “All this means is an entire generation is now saddled with unsustainable debt in exchange for an attempt at, at least, a college degree. The burden is so heavy that even if you graduate, you may not have access to a middle-class life.”
Biden compared the situation and the actions to the various pandemic relief programs that launched when COVID was raging and threatened a financial crisis, arguing that necessary moves were taken to help our country.
“And now it’s time to address the burden of student debt the same way,” said Biden.
The White House said more information and an application for the debt forgiveness will be available in the coming weeks.
The plan drew immediate criticism from Republicans and other critics of Biden, as well as those families and students who paid off their student loans or did not take any loans and paid full freight for their college costs. Some Democrats were critical, as well, saying the debt forgiveness does not go far enough.
“I believe my plan is responsible and fair,” said Biden. “It focuses the benefit on middle-class and working families and helps both current and future borrowers. And it’ll fix a badly broken system.”