What is Debt Forgiveness Plan?

The Debt Forgiveness Plan was announced by the Biden Government on August 24 last year. This plan vowed to cancel 10,000 USD of student loan debt for individuals earning less than 125,000 USD or for households earning less than $250,000 per annum.

What is Debt Forgiveness Plan?

Under this plan, those who are receiving Federal Pell Grants will be given an additional 10,000 USD in debt forgiven. Federal Pell Grants are given to undergraduate students with exceptional financial needs who have not earned a professional, bachelor’s, or graduate degree. This plan covers all college students whose loans were disbursed prior to July 1, 2022.

Why is Debt Forgiveness Plan in News?

Recently, the US Supreme Court heard cases challenging the legality of this initiative that would waive off 400 billion dollars in student loans.

Under which law was the Debt Forgiveness Plan implemented?

HEROES Act. That is, Higher Education Relief Opportunities for Students Act, 2003. The act empowers the state secretary to waive the regulatory provisions to protect the borrowers affected by military operations or national emergencies or war.

Have the student’s debts been waived before?

Yes. In 2020, the Trump administration used the HEROES Act to halt loan requirements. This was done due to the National Emergency declared in 2020.

The budget cost of the plan

More than 26 million people have applied for debt relief. Out of these, the US Government had relieved 16 million. To continue the plan for the next three decades, the US Government will have to spend 400 billion USD.

Observation: Can India adopt such measures?

The Reserve Bank of India says that student loans in India as of August 26, 2022, are Rs. 1,45,785 crores. Due to high-interest rates and job insecurity, students are facing difficulties to repay loans. The annual interest on education loans in the country ranges from 7.3% to 16%. Apart from this, there are processing fees. Given the market size and diversity, it is difficult to implement such loan waivers in India.



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