President Joe Biden’s long-anticipated announcement Wednesday to cancel $10,000 in student debt — and $20,000 in selected circumstances — may not be generally associated with community colleges, but the action will have a dramatic impact on the sector.
The average amount of federal debt held by community college students is $9,750, according to federal data. Therefore, the typical community college student who has not borrowed to attend other institutions will have their debt eliminated in its entirety under the plan, which is not the case in any other sector. Some community college borrowers will not qualify for cancellation because their incomes exceed $125,000, but there are relatively few of them.
Because community colleges provide tremendous value for the money — with average annual tuition and fees of just $3,800 — most two-year college students do not rely upon federal loans, noted Walter Bumphus, president and CEO of the American Association of Community Colleges (AACC). But the students that do will benefit tremendously from the loan policies just announced, he said.
“These policies will impact former students who are striving to improve their workforce participation and support their families as well,” Bumphus said. “Helping these individuals steer clear of debt will help the economy grow in the long term and enhance economic mobility in America.”
Effect on Pell students
Under the cancellation plan, students who have received Pell grants will be eligible for up to $20,000 of loan cancellation, providing further debt relief to community college students who have borrowed heavily or continued their postsecondary education at another institution. More than 40% of all community college students received a Pell Grant in the 2017-18 academic year, according to the U.S. Education Department (ED). Slightly less than 15% of all community college students take out federal loans each year, with an average amount of $4,800.
The cost of Biden’s debt cancellation policy is expected to exceed $300 billion, based on reliable estimates. This is more than 10 times the projected cost of the Pell Grant program for the current award year ($28.7 billion, according to ED). This cost has been widely cited as one reason why the administration took longer than anticipated to make a decision on cancellation. In some legislative contexts, this type of action would have to be paid for by either offsetting spending reductions or increasing taxes, but this will not be the case.
Revamped income-driven repayment plan
The Biden administration has also announced a new income-driven repayment plan that provides favorable terms to borrowers. The amount of discretionary income that borrowers will have to repay has been halved from 10% to 5%. Critically for community college students, and consistent with AACC’s public policy agenda, loans will be forgiven after 10 years of repayments for borrowers who originally borrowed $12,000 or less.
The administration is also acting to enhance access to Public Service Loan Forgiveness, which is available to those working in the public sector, including many community college employees.
New ED accountability effort floated
Along with the announcements on loans, ED stated that it will announce new actions to “hold accountable” colleges that have contributed to the student debt crisis. Presumably, these are not community colleges, but details on this initiative were not yet available. The department has said that it would publish an annual “watch list” of the programs with the “worst debt levels in the country, so that students registering for the next academic year can steer clear of programs with poor outcomes.”
ED also stated that it would request “institutional improvement plans from the worst actors” that outline how the colleges with the most concerning debt outcomes plan to lower their students’ debt. However, further details about this proposal were not available.