President Joe Biden announced a plan to forgive $10,000 in student loans for borrowers who make less than $125,000 per year and $20,000 for Pell Grant recipients. The president is also extending the freeze on payments and interest until Dec. 31 but said this is the final time he will do that.

“In keeping with my campaign promise, my Administration is announcing a plan to give working and middle class families breathing room as they prepare to resume federal student loan payments in January 2023,” the president said in a tweet announcing his decision.

The Department of Education already has income information available for nearly 8 million borrowers, so they will receive relief automatically. For everyone else, they can fill out an application that will be launched by the department in the coming weeks. The income limit for married couples is $250,000.

There will also be significant changes to the repayment process. Borrowers with undergraduate loans will be able to cap their repayment at 5% of their monthly income. The administration is also guaranteeing that borrowers who makes under 225% of the federal poverty level, about $15 an hour, will not have to make any monthly payments. It also covers the unpaid monthly interest for people making income driven repayments, that way loan balances will never increase as long as monthly payments are made.  Finally, borrowers with a balance of less that $12,000 will have their balances forgiven after 10 years of payments, instead of 20. 

In keeping with my campaign promise, my Administration is announcing a plan to give working and middle class families breathing room as they prepare to resume federal student loan payments in January 2023.

I'll have more details this afternoon. pic.twitter.com/kuZNqoMe4I

— President Biden (@POTUS) August 24, 2022

Reaction on Capitol Hill fell along party lines.

“Democrats’ student loan socialism is a slap in the face to working Americans who sacrificed to pay their debt or made different career choices to avoid debt. A wildly unfair redistribution of wealth toward higher-earning people,” Senate Minority Leader Mitch McConnell, R-KY, said in a statement.

While House Speaker Nancy Pelosi, D-Calif, celebrated by stating, “President Biden’s bold action is a strong step in Democrats’ fight to expand access to higher education and empower every American to reach fulfillment. By delivering historic targeted student debt relief to millions of borrowers, more working families will be able to meet their kitchen table needs as they continue to recover from the challenges of the pandemic.”

The forgiveness will cost $300 billion, according to the University of Pennsylvania Wharton School Budget Model. The Committee for a Responsible Federal Budget projects forgiveness will undermine the recently approved Inflation Reduction Act.

“Simply extending the current repayment pause through the end of the year would cost $20 billion – equivalent to the total deficit reduction from the first six years of the IRA, by our rough estimates,” CRFB said in its analysis. “Canceling $10,000 per person of student debt for households making below $300,000 a year would cost roughly $230 billion. Combined, these policies would consume nearly ten years of deficit reduction from the Inflation Reduction Act.”

During a news conference Wednesday, the president said the plan will be paid for by deficit reduction last year and future 10-year deficit reduction in the Inflation Reduction Act.

Cancellation is a tricky topic politically. Progressives wanted more — either complete forgiveness or $50,000 per borrower. The leader of that group, Sen. Elizabeth Warren, D-Mass., has argued wiping out student loan debt will provide relief for working and middle class Americans dealing with rising costs and help close the racial wealth gap. Conservatives and moderates have expressed concerns about the cost and said it’s not fair to those who already paid off their debt or chose not to go to college. 

This story has been updated.