Biden to Announce Student Loan Forgiveness Plan

The forgiveness applies to students with federal loans from both undergraduate and graduate programs, as well as Parent Plus loans, according to people familiar with the matter. While debt forgiveness is often treated as income for tax purposes, the canceled student debt will be exempt, like some other federal student debt forgiveness programs.

Mr. Biden also announced an extension of the pandemic pause on student loan payments through the end of this year. Loan payments were set to resume for millions of borrowers after Aug. 31. The Education Department will release more details on how borrowers can claim relief in the coming weeks and will make an application available before the repayment pause expires at the end of the year. Around eight million borrowers could be eligible for automatic relief, the department said, because the department has their income data.

A plan to forgive around $10,000 of student debt for borrowers who make under $125,000 a year or around double that for married couples would include most of the 40 million people with student debt. The action could render up to 15 million borrowers whose balances are under $10,000 entirely free of student debt.

The provision for Pell Grant recipients would likely push that number higher, as around 7 in 10 borrowers with any federal loans also received a Pell Grant. Pell Grant recipient graduates have about $4,500 more in debt than other graduates, according to a 2020 analysis of federal data by the Institute for College Access and Success, an advocacy group. Pell Grants are a form of federal financial aid for undergraduate students.

The inclusion of Parent Plus loans means millions of families who have taken on massive debt could see their debt load decreased. While the government imposes a limit on the amount of undergraduate debt a student can take out, the Parent Plus program lets people borrow the total cost of attendance—room and board, books and personal expenses on top of tuition—for as many years as it takes to get a degree.

The White House didn’t immediately respond to a request for comment on the details of the coming announcement.

Republican lawmakers quickly criticized the idea. “Who will have to pay for Biden’s debt transfer scam? Hard-working Americans who already paid off their debts or never took on student loan debt in the first place,” House Minority Leader Kevin McCarthy (R., Calif.) wrote on Twitter.

The coming announcement brings to a close a fierce debate within the administration over how to approach student loans. The president had long been skeptical of using his executive authority to forgive debt. He raised concerns in internal meetings that the measure could benefit wealthy people and instructed his staff to impose an income cap so the benefits didn’t flow to individuals making lucrative salaries, according to administration officials and others familiar with the discussions.

The president started warming to the prospect of using his authority to forgive some debt in recent months as senior aides, including White House chief of staff Ron Klain, made the case that it would be popular with young voters. Other Biden advisers argued that the move would help minority and low-income borrowers and be a legacy-defining moment for the president.

But doubts about the economic and political consequences of loan forgiveness persisted at senior levels of the White House in recent weeks, with some worrying about backlash from people who didn’t go to college, didn’t take out loans or already paid them off. The impact of loan forgiveness on inflation was also an issue of concern for Mr. Biden and his team, the people said.

Mr. Biden repeatedly delayed making a decision. In May, he said he would make an announcement within a “couple of weeks,” which didn’t come to fruition.

The White House kept the details of the decision closely guarded. Only a small group of Mr. Biden’s top aides have been informed of his plans, people familiar with the matter said.

Mr. Biden spoke by phone on Tuesday night with Senate Majority Leader

Chuck Schumer

(D., N.Y.) to discuss the issue, and he separately held a joint call with Sens. Elizabeth Warren of Massachusetts and Raphael Warnock of Georgia, according to people with knowledge of the conversations. All three Democrats have been encouraging Mr. Biden to forgive student debt.

Mr. Biden returned to the White House on Wednesday from Delaware, where he was on vacation with his family. The president had said he would announce a decision on student loans by Aug. 31.

If the administration does act to cancel around $10,000 in debt, it will fall far short of what borrower advocates and progressive Democrats have demanded: Full student debt cancellation or at least canceling $50,000 per borrower. But it would represent a sea change in the federal government’s approach to higher education finance, and is a tacit admission that the decades-old programs designed to make college affordable haven’t lived up to their promise.

Polling has shown that Americans are divided on the issue of debt forgiveness, with support fluctuating depending on the details of the proposal. An NPR/Ipsos poll released in June found 55% support for the idea of forgiving up to $10,000 in student loan debt.

The decision, just over two months ahead of the midterm elections, would likely spark legal and political backlash from opponents of mass debt forgiveness, including Republicans who believe that voters will be turned off by a policy that puts taxpayers on the hook for individuals’ loans.

Republicans oppose broad student debt cancellation. In May, GOP senators led by

Mitt Romney

of Utah introduced a bill to limit presidential authority to cancel debt, though it hasn’t advanced in the Democratic-controlled Senate.

Economists say that a tailored debt cancellation plan is unlikely to exacerbate short-term inflationary pressures, but could add to them in the long term, especially if universities continue to raise tuition because students might expect their loans to eventually be canceled.

Even some economists usually aligned with the White House, including former Clinton administration Treasury Secretary

Larry Summers

and former Obama administration economist

Jason Furman,

have criticized the cost of a potential student debt cancellation and warn that it could force future spending cuts or tax increases.

A budgeting model from the Wharton School of the University of Pennsylvania estimated this week that forgiving $10,000 in federal student loan debt with income caps would cost around $300 billion over a 10-year period.

—Ken Thomas contributed to this article.

Write to Andrew Restuccia at andrew.restuccia@wsj.com and Gabriel T. Rubin at gabriel.rubin@wsj.com