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Wednesday’s announcement by President Joe Biden included a new approach to student loan debt. This includes extending the payment freeze until the end of the current year and forgiving $10,000 to borrowers making less than $125,000 annually.

Pell Grant recipients with low incomes will be eligible for up to $20,000 in student loan forgiveness.

The President will speak at 2:05 p.m. ET to officially announce the plan.

Biden announced the plan on Twitter, saying that “In keeping with My Campaign Promise, my Administration is annoucing a plan to give working- and middle-class families breathing space as they prepare for federal student loan payments to resume in January 2023.”

The Department of Education will provide details on how borrowers can apply for this relief in the coming weeks. The application should be available no later that December’s pause on repayments. Millions of borrowers can automatically receive relief based on their income data.

The department also proposes a federal rule to make the student loan system easier for future and current borrowers.

The proposed rule would change the income-based repayment of student loans. This would reduce by half the amount that borrowers would have had to pay each month on their undergraduate loans. “While borrowers with both undergraduate loans and graduate loans will pay an average rate, a weighted average rate.”

The proposal would also “raise income that is considered non-discretionary income, and protect it from repayment.” The department stated that it would forgive loan balances after 10 year of payments, rather than 20 under many income-driven repayment programs for borrowers with original loan amounts of $12,000 or less.

Other changes to the proposed rule include simplifying loan repayment options for borrowers.

Since taking office, Biden has been under pressure from the left to cancel large amounts of student loan debt.

Senator Chuck Schumer, the Senate Majority Leader, and Elizabeth Warren, a key Democratic legislator, had asked Biden to cancel $50,000 per borrower. Before the expected announcement, the President spoke to Schumer, Warren, and Democratic Senator Raphael Warnock from Georgia.

Schumer and Warren stated in a joint statement, that this decision was “a huge step forward in addressing student debt crisis.”

They added that “the positive effects of this move will be felt across the country, especially in minority communities, which is the single most efficient action that the President could take on his own help working families and to the economy.”

An earlier this week, NAACP President Derrick Johnson criticized the reported provisions of Biden’s plan. He said that they were inadequate and “not how you treat Black voters.”

“President Biden’s decision on student loan cannot be seen as the latest example of a policy which has left Black people, especially Black women, behind,” Johnson said. Johnson stated on Tuesday that this is not how you treat Black voters, who voted in record numbers and provided 90% to save democracy in 2020.”

Biden has repeatedly resisted the idea of cancelling that much. He suggested that he would support removing $10,000 from borrowers with incomes below a certain threshold. Biden, on the campaign trail, called for immediate cancellation of $10,000 per person’s student debt as a response the pandemic. He also suggested that undergraduate tuition-related federal student loans from two-year and four-year public universities be forgiven for borrowers earning more than $125,000 per year. He also stated that he prefer Congress to act, rather than using executive authority.

On the right, Republican lawmakers decry Biden’s relief plan.

Senator Minority Leader Mitch McConnell stated that the plan is yet another way to “make inflation even worse” as well as “reward far-left activists.”

“President Biden’s student loan socialism slaps in the face of every family that sacrificed to save for college. Every graduate who paid their loans and every American who chose a career path or volunteered in our Armed Forces to avoid taking on more debt,” he said. This policy is shockingly unfair.

Although student debt cancellation could provide financial relief for millions of Americans, it would also shift the cost to Uncle Sam.

According to the Penn Wharton Budget Model, a $10,000 cancellation for every borrower earning less than $125,000 per year could result in a cost of nearly $300 billion. The estimate did not include any additional forgiveness for Pell grant recipients.

Furthermore, loan cancellation will not address the root problem: college affordability. There are currently $1.6 trillion in federal student loan debt. According to the Committee for a Responsible Federal Budget, the amount of outstanding student loan debt would return to this level in four years after $10,000 per borrower has been canceled.

Inflation could also be increased by student loan cancellation. However, experts believe that the effect would be minimal because borrowers typically pay off their student loans over time. They wouldn’t get a lump sum of cash if they had some of their debt canceled. Instead, they would be required to contribute less each month towards their student loan payments.

“The inflationary effect is certainly positive, but it wouldn’t be very significant,” Kent Smetters, faculty director of the Penn Wharton Budget Model, said. “We’re talking about very little impact,” stated Kent Smetters (faculty director at Penn Wharton Budget Model).

Larry Summers, a former Treasury secretary who was the director of President Barack Obama’s National Economic Council, argued that relief would help to reduce inflation before the announcement.

Summers tweeted Tuesday that “I hope the Administration doesn’t contribute to inflation macroeconomically by offering unreasonably generous Student Loan Relief or microeconomically by encouraging college tuition rises.” Later, Summers added, “Student loans debt relief is spending which raises demand and increases inflation.” It uses resources that could be used to help those who are unable to attend college for whatever reason. It will also be inflationary, as it will increase tuitions.

Marc Goldwein is the senior vice president and policy director for the Committee for a Responsible Federal Budget – a nonpartisan group that tracks federal expenditures – and he argued against the plan during an interview with Poppy Harlow, CNN’s Tuesday morning news program.

He believes that removing $10,000 of debt from each borrower would likely increase inflation and undermine the stated goal under the Democrats’ Inflation Reduction Act. It will also not significantly reduce the racial wealth disparity.

“The Inflation Reduction Act can save $300 billion dollars over the first ten years. He said that if we cancel $10,000 of debt and extend the pause for a few more months, we’ll be at approximately that amount in terms of new costs. “All deficit reduction will be eliminated. We will likely do more to increase inflation through debt cancellation than any inflation reduction under the Inflation Reduction Act.

It is also difficult to limit loan forgiveness to those most in need and exclude borrowers with higher incomes. A threshold that reduces income for borrowers earning more than $125,000 per year could make it easier to ensure that a greater proportion of the relief is available to low-income borrowers. However, some doctors and lawyers who will eventually have high incomes may also benefit.

The Penn Wharton Budget Model also breaks out the share of forgiven loans by income group. It assumes that $10,000 is canceled for borrowers earning less then $125,000 per annum and households earning less over $250,000.

It was found that one third of the canceled dollars would go towards households earning less than $50,795 per year. The debt relief would be distributed to people who earn between $50,795-$141,096.

A little over 14% of the canceled money would go to households that earn more than $141,096 per year.

Biden has been more focused on student debt relief in the interim. Biden’s efforts were primarily focused on expanding and streamlining federal student loan forgiveness programs.

The $32 billion in debt that Biden’s administration has canceled so far is more than any other administration. This is largely due to borrowers who were defrauded and permanently disabled borrowers.

He also temporarily increased the Public Service Loan Forgiveness Program that forgives the debt of government workers and non-profit workers after 10 years of payments. He also made changes to income-driven repayment plans to bring millions of borrowers closer towards forgiveness.

The programs are complex and sometimes don’t work as intended. A Government Accountability Office report recently found that very few people have been eligible for forgiveness under income-driven repayment plans. As of June 1, 2021, the Department of Education had granted forgiveness for 157 loans. Approximately 7,700 loans in repayment might have been eligible for forgiveness.

The Department of Education stated Wednesday that it is proposing “long-term changes” for the PSLF program in a statement.

The release states that the Department suggested that more payments could be made to be eligible for PSLF, including partial, lump sum and late payments. It also proposed that certain types of deferments or forbearances – such as those for Peace Corps, AmeriCorps service and National Guard duty – could count towards PSLF.

This is a breaking story that will be updated.