Biden is on the verge of canceling at least $10,000 in student loans — but that doesn't mean borrowers will get relief right away

• The Biden administration is on the verge of providing student debt relief to most borrowers.
• But their efforts to exclude higher-earners may create a bureaucratic nightmare for the rest.

Millions of federal student-loan borrowers may soon be able to get long-awaited debt relief — but a ton of paperwork could stand in the way.

On the campaign trail, President Joe Biden promised federal borrowers with student debt he would approve $10,000 in relief. He said in April a decision on whether he will carry it out will be made in the coming weeks.

Though details remain in flux, the White House is inching towards providing $10,000 in debt relief for singles earning $150,000 and below, along with couples earning $300,000 and under. Under those parameters, roughly 97% of borrowers would qualify in an apparent attempt to keep relief narrowly targeted for those in default.

But some experts and Democratic lawmakers are sounding the alarm on targeting loan forgiveness, citing the administrative burden that would fall squarely on the poorest borrowers. The initiative many Democrats are counting on to help them in the polls ahead of the fall midterms risks morphing into a bureaucratic fiasco that shuts out the borrowers least able to repay and blunting its effectiveness ahead.

"You're not making the policy more progressive because of how hard it's going to be for folks to demonstrate that they have a low enough income to benefit," Mike Pierce, executive director of nonprofit Student Borrower Protection Center, told Insider. "The administrative burden associated with any effort to income-limit is going to end up making it hard or impossible for the lowest-income people to actually get their debt canceled."

"In practice, an income cap would require the federal government to set up a paperwork trap that could deny relief to the student loan borrowers who most urgently need the help," Bryce McKibben, a former Democratic policy advisor, wrote in a blog post.

One potential problem involves targeting debt relief based on a borrower's income. That would compel the Department of Education to verify a person's identity and income to determine whether they qualify under a relief program. But the Education Department doesn't have that information on hand for borrowers. The Internal Revenue Service holds that data for many taxpayers, but it's barred from sharing it with other federal agencies and private businesses.

"I'm not sure if the Department of Education can have the IRS give them that kind of information given the rules around privacy," Matt Bruenig, founder of the left-leaning People's Policy Project, said in an interview.

'A cautionary tale'

As Politico reported earlier this month, the Education Department privately expressed concerns that it does not have the data to verify borrowers' incomes on its own, so if the department chooses to impose an income cap, the borrower would likely have to complete paperwork to access loan forgiveness.

This is concerning to Pierce, who noted that administrative paperwork to qualify for relief has long shut borrowers out from debt cancellation they would otherwise qualify for. He pointed to loan forgiveness programs for public servants and income-driven repayment plans.

"Income-driven repayment is a cautionary tale here," Pierce said. "We have this program that promised $0 monthly payments for the lowest-income people, but it has ended up working really well for people that have good jobs and can take the time to learn the rules and paperwork process."

The Education Department declined to comment on the record.

Eugene Steuerle, co-founder of the Urban-Brookings Tax Policy Center, said it's complicated to design a debt relief program that ensures a level playing field between different kinds of borrowers.

"The other problem with an income test is over what period are you going to apply it?" Steuerle told Insider, using a hypothetical example of a graduate student with no annual income. "If I'm in graduate school and have zero income so therefore I meet all the qualifications, I'm going to be different from somebody who's out there earning $50,000 a year as a welder."

Should Biden place income thresholds on forgiveness, not only will the relief likely not be automatic and take weeks to hit borrowers' accounts — it could also coincide with the expiration of the student-loan payment pause planned for September 1. This would be an additional burden for borrowers who have not paid debt for the duration of the pause.

One Senate Democrat says he is pushing the White House to establish a program that doesn't bury borrowers under a mound of paperwork. "We need to tailor this in a way that doesn't get us entangled in a bureaucratic mess," Sen. Raphael Warnock of Georgia recently told Insider.

Warnock, alongside Sens. Elizabeth Warren of Massachusetts and Chuck Schumer of New York, are the top advocates urging the White House to administer $50,000 in debt relief per borrower ahead of the November midterms. Biden, though, has already ruled out relief on that scale.

Republicans are pummeling Democrats for inching towards debt relief, calling it a bailout for the urban professionals that make up a growing part of their constituency.

But Democrats are scrambling to demonstrate their party can deliver on their campaign promises with their signature climate and tax bill stalled out in the Senate, due to resistance from Sen. Joe Manchin of West Virginia. Biden's approval rating among young voters has plummeted.

Those lawmakers have also pushed back against the idea student-loan forgiveness would benefit the highest-earners — an argument made for why an income-cap should be necessary. Warren downplayed the issues that could arise from means-tested relief.

"They may have to get information out and have people apply," Warren told Insider. "But there's no reason that the Department of Education can't be in a position to move quickly once the White House makes an announcement about debt cancellation."