The Biden administration is to provide $10,000 in forgiveness on student loan debt for Americans earning less than $125,000 a year.
Americans with lower incomes who had received a special federal subsidy to attend college, known as a Pell grant, will receive $20,000 in student debt forgiveness.
The Biden administration also said those with undergraduate loans would be able to cap their payments at 5 per cent of their monthly income, a change that could significantly reduce bills for millions of borrowers.
It said this would mean that the average annual student loan payment would be lowered by more than $1,000 for both current and future borrowers.
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US president Joe Biden said in an announcement on Twitter on Wednesday that the new initiative was in keeping with a promise he made during his campaign for the White House.
However, the move has been criticised by some on the left as not going far enough, while Republicans and some economists argued that the initiative would add to the deficit and drive inflation.
The White House said Mr Biden believed a post-high school education should be a ticket to a middle-class life, but for too many, the cost of borrowing for college was a lifelong burden that deprived them of that opportunity. It said that during the campaign for the presidency he had promised to provide student debt relief.
Biden’s Republican opponents have been critical for some time of his plans to eliminate some student debt
Mr Biden said the administration’s plan would give “breathing room” to working and middle-class families as federal student loan repayments will resume in January after a pandemic-era moratorium.
Some economists such as Larry Summers, the former Democratic treasury secretary, have maintained that the planned student loan forgiveness scheme would increase inflation and add to the federal deficit.
Mr Biden’s Republican opponents have been critical for some time of his plans to eliminate some student debt.
Last month the ranking member of the powerful Ways and Means committee in the House of Representatives, Kevin Brady of Texas, said the move represented “a giveaway to highly educated college grads”.
He argued the initiative would “make rising costs worse rather than address the costs of colleges”.
The White House believes that 90 per cent of the new student loan relief will go to people earning less than $75,000.
The White House said on Wednesday that about 45 million Americans had cumulative student debts of $1.6 trillion.
It said nearly a third of borrowers had debt but no degree. It said many could not continue with their studies due to the high costs involved.
“About 16 per cent of borrowers are in default — including nearly a third of senior citizens with student debt — which can result in the government garnishing a borrower’s wages or lowering a borrower’s credit score. The student debt burden also falls disproportionately on black borrowers. Twenty years after first enrolling in school, the typical black borrower who started college in the 1995-96 school year still owed 95 per cent of their original student debt”, it said.
