Student loans: What to expect from Biden’s forgiveness package

Yahoo Finance's Ronda Lee explains what President Biden is expected to announce regarding student debt and how that will affect borrowers.

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AKIKO FUJITA: Well, President Biden is expected to make a decision on student debt cancellation today, with the White House reportedly considering canceling up to $10,000 in student debt for borrowers. Yahoo Finance's Ronda Lee with me here at the desk to break it all down. And Ronda, we've gotten some reporting out of the Wall Street Journal, as well as Bloomberg. We haven't heard from the White House yet, but what are the scenarios we're looking at right now?

RONDA LEE: OK, so first scenario is forbearance expires August 31. So he either just extends the forbearance. Second scenario, we get our 10,000 with the income caps and loan forgiveness. Third scenario, combo package. And what most of the outlets are reporting is this sort of combo package of an extension of forbearance until the end of the year and this $10,000 in loan cancellation.

AKIKO FUJITA: And just to be clear, $10,000 cancellation for those making $125,000 and less. That's the cap you're talking about.

RONDA LEE: That's the cap that we're talking about. That's what outlets are reporting. There's also some reporting of a possibility of an additional $10,000 for people who receive the Pell Grant, which is a need-based grant, while they were in school.

AKIKO FUJITA: This is obviously a decision that's been a long time coming. We know the president has been pulled from both sides of the party. Not going to please everybody, but there is the broader question here about the amount of debt students have taken on, and whether, in fact, there needs to be a larger conversation about reform.

RONDA LEE: And that's what everyone on both sides is talking about. Regardless of what happens with the forbearance or the cancellation, unless you reform the process, then we're going to be at this juncture later down the line because we have income-- like, the caps for the loans, it used to be that borrowers could only take about-- take out a certain amount. An 18-year-old can't go to a bank right now and get $30,000 in loans. But we're letting them do that because tuition is over $30,000.

So that's the big issue, with the price of tuition going up and all this other stuff, is our system of how we are letting borrowers finance debt. Does that really work? And most people-- I know that this is very controversial for most people, and it's a touch-and-go issue. But when it comes to higher education, it's kind of like the American dream of home ownership. We told these kids, you know what? You do this. This is good debt. It's going to help you further down the line.

But one of the things I always tell people, most of the people who had student loan debt in the '80s, their tuition was probably like 2,000 to 5,000. That's not the case now. So, yes, you could go and get a part-time job and pay off your student loan debt.

There is no way someone-- like, you require a bachelor's degree to be an admin assistant. They've taken out about $60,000 in loans. They're not getting $60,000 in their income. But they have to repay this back. So we need to look at the larger picture of the rising cost of tuition, and is this the-- this whole way of financing your education when your chances of gainful employment afterwards do not mirror?

AKIKO FUJITA: So the amount of debt going up, number one, because you can take out more loans.

RONDA LEE: Yes.

AKIKO FUJITA: But also because the cost of tuition has gone up significantly. Certainly a longer term conversation.

RONDA LEE: Definitely.

AKIKO FUJITA: I know it's been a busy day for you today, but we will be watching the administration or the president's announcement very closely. Thanks so much for that, Ronda.