Southern US gets most relief from Biden’s plan for students, says New York Fed

Southern US gets most relief from Biden’s plan for students, says New York Fed

(Bloomberg) — President Joe Biden’s loan-forgiveness plan will eliminate about a third of student debt owed to the federal government, with low-income borrowers and those living in southern states getting the biggest boost, according to an analysis by the Federal Reserve Bank of New York. .

The New York Fed said in a blog post on Tuesday that the proposal would eliminate balances held by the federal government for about 40% of borrowers, and cancel $441 billion in loans. She added that borrowers who live in neighborhoods with a median household income of less than $83,000 – which is about 65% of the total – will receive nearly three-quarters of the debt relief.

The Federal Reserve study also found that residents of Washington, D.C., would have the largest average amount of debt forgiven for each eligible borrower. The six states with the largest amount are in the South: North Carolina, Georgia, South Carolina, Alabama, Mississippi, and West Virginia.

Biden’s plan offers a waiver of up to $10,000 per borrower, with a minimum family income of $125,000 for eligibility. The Federal Reserve Bank of New York said that cap excludes nearly one in 20 borrowers. Additional forgiveness is available for Pell Scholarship recipients that assist students with greater financial needs.

Critics of the plan, including Biden’s Republican opponents, say debt relief for Americans who went to college – and are therefore likely to earn more anyway – is a policy that favors the wealthy.

Debt forgiveness will help distressed borrowers boost their credit scores and catch up on other obligations, such as credit cards and auto loans, according to the New York Federal Reserve. “Reducing the prevalence and balances of student debt would create a significant financial improvement for borrowers, particularly among those with lower incomes,” she said.

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Even after the plan is implemented, many Americans will still have a large debt burden and will have to make large monthly payments when the pandemic freeze comes in January.

A report from the Federal Reserve Bank of Dallas, also published Tuesday, notes that the share of borrowers with more than $50,000 in student loans rose about 5 percentage points to 21.4% in the five years through 2021.

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