President Joe Biden on Wednesday announced a plan to forgive up to $10,000 of federal student loan debt, or up to $20,000 for Pell Grant recipients, following through on a campaign pledge to give relief to millions of borrowers. 
The plan applies to borrowers making less than $125,000 per year. It also extends the current pause on federal student loan payments and the accumulation of interest on those loans until January 2023. 
"I made a commitment that we would provide student debt relief, and I'm honoring that commitment today," Biden said in remarks at the White House.
In addition to the $10,000 that will be forgiven for all federal borrowers, an additional $10,000 in forgiveness will be conveyed to borrowers who received Pell Grants, which are given to low-income students to help pay for higher education. The White House said Pell Grant recipients make up more than 60 percent of the borrower population and that the Department of Education estimates roughly 27 million borrowers will be eligible to receive the increased $20,000 in relief.
In remarks at the White House, Biden said 95 percent of borrowers can benefit from these actions, and nearly 45 percent can have their full debt balance forgiven. 
"I ran for office to grow the economy from the bottom up and the middle out. Because when we do that, everybody does better," Biden said. "That's what today's announcement is about. It's about opportunity. It's about giving people a fair shot."
He also announced borrowers will be able to cap their repayment at 5 percent of their monthly income under a proposed rule from the Department of Education.
The Department of Education will release additional information about the exact implementation process in the coming weeks, which will consist of a "short, simple form" to apply for relief, Biden said.
Currently, the Federal Student Aid office directs borrowers to sign up for email alerts from the Education Department to be notified when the application goes live. That page can be accessed at Borrowers should check the top box for "Federal Student Borrower Updates."
The details of the plan were closely guarded until Biden's announcement. He has faced pressure from outside groups and members of his own party to take action on student debt since taking office.
Progressive lawmakers and outside groups hailed the move as an important step in providing relief to Americans but added that more work remains to be done. "With the flick of a pen, President Biden has taken a giant step forward in addressing the student debt crisis by canceling significant amounts of student debt for millions of borrowers," said Sens. Chuck Schumer (D-N.Y.) and Elizabeth Warren (D-Mass.) in a joint statement. 
The two northeastern Democrats have called for Biden to forgive as much as $50,000 of debt per borrower, aligned with calls from some activists and outside groups.
"Broad-based student debt cancellation will free millions of Americans to invest in their futures, support their families, and contribute to their communities and the economy," said Natalia Abrams, the president and founder of Student Debt Crisis Center. "While this announcement is a major win for many, it is important to stress that $10,000 will leave many others still crushed by debt, and important details will determine who has access to much-needed relief."
The impact of Biden's plan remains, so far, unclear, but economists have mapped the potential effects.
A report released Tuesday by the Penn Wharton Budget Model, a University of Pennsylvania group of economists and data scientists who analyze the economic and fiscal impact of public policy, found that the cost of one-time forgiveness of $10,000 with a $125,000 income cap would be nearly $300 billion.
Biden addressed cost concerns by comparing forgiving student loan debt to the Paycheck Protection Program, the government aid program that helped small businesses weather the pandemic. Over $700 billion of the nearly $800 billion appropriated for those loans have been forgiven, including some given to wealthy celebrities.
"No one complained that those loans caused inflation," Biden said of the PPP loans. "A lot of these folks and small businesses are working and middle-class families. They needed help. It was the right thing to do. So the outrage over helping working people with student loans I think is simply wrong, dead wrong."
The Penn Wharton analysis also found $10,000 of debt forgiveness would mainly benefit borrowers in the top 60 percent of the income distribution, painting a contrast with Biden's goal of directing the most help to borrowers on the low end of the economic strata.
In April 2021, Sen. Elizabeth Warren (D-Mass.) released data illustrating what the impact of broad debt forgiveness might look like. At the time Warren, a long-time proponent of student loan forgiveness, was calling for debt relief of up to $50,000 per borrower.
According to the data from the Federal Student Aid office, if the federal government canceled $50,000, 36 million or about 80 percent of federal borrowers would have their debt completely eliminated, including 95 percent of the 10 million federal student loan borrowers who were either in default or more than three months delinquent on their debt at the end of 2019.
The impact would be smaller if Biden's proposed $10,000 were canceled. With that amount, 15 million borrowers would have their debt completely eliminated, of which only 4.6 million would be borrowers who were either in default or more than three months delinquent at the end of 2019.
The data Warren released did not account for an income cap like the one Biden's plan includes, meaning the ultimate impact of Biden's plan will likely fall on a narrower set of borrowers.
The plan is likely to face opposition from student loan service providers and other interest groups and could become tied up in court.
The Education Department shared a legal memorandum outlining Education Secretary Miguel Cardona's legal authority to forgive student debt, citing the HEROES Act passed in the wake of the September 11 terror attacks. 
The memorandum said the HEROES Act allows the education secretary to "waive or modify" provisions of student financial aid programs if the secretary "deems" the changes "necessary to ensure" that borrowers are "not placed in a worse position financially" because of a national emergency, referring to the COVID-19 pandemic.
The Departments of Justice and Education last year reviewed whether the president has legal authority via executive order. The results of that review are contained in a heavily redacted memo released by the Debt Collective in October after a Freedom of Information Act request.
Updated on August 24, 2022, at 5:13 p.m. ET with added context.