Washington (CNN)Millions of federal student loan borrowers will soon see up to $20,000 of their debt wiped away thanks to a new plan announced by President Joe Biden last week.
Not every student loan borrower is eligible for the debt relief. First, only federally owned student loans qualify. Private student loans are excluded.
Second, high-income borrowers are generally excluded from receiving debt forgiveness.
Individual borrowers who make less than $125,000 a year and married couples or heads of households who make less than $250,000 annually will see up to $10,000 of their federal student loan debt forgiven.
If a qualifying borrower also received a federal Pell grant while enrolled in college, the individual is eligible for up to $20,000 of debt forgiveness. Pell grants are awarded to millions of low-income students each year, based on factors including their family’s size and income and the cost charged by their college. These borrowers are also more likely to struggle to repay their student debt and end up in default.
Here’s what else borrowers need to know about the new student loan forgiveness plan:
What year is the income threshold based on?
Eligibility is based on a borrower’s adjusted gross income for either tax year 2020 or 2021. Adjusted gross income can be lower than your total wages because it considers tax deductions and adjustments, like contributions made to a 401(k) retirement plan.
How will the government know what my income was?
The Department of Education says it already had income information for nearly 8 million borrowers, likely because of financial aid forms or previously submitted income-driven repayment plan applications. Those borrowers will automatically receive the debt relief if they meet the income requirement.
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