President Biden on Wednesday announced a plan to erase thousands of dollars in student loans for borrowers, aiming to help more than 40 million Americans who owe a combined $1.7 trillion in debt.
Student debt has soared in recent decades as rising higher education costs have far outpaced inflation. And loan programs haven’t kept up, with the Biden administration noting that Pell Grants once covered almost 80% of the cost of a public four-year college, but today only provides enough support to pay for one-third.
Biden canceling up to $20,000 in student loan debt for millions of Americans, extending payment pause
The burden of student debt has weighed on borrowers, keeping some from achieving milestones such as buying a home or starting a family due to the financial constraint. But Biden’s loan-forgiveness program won’t help every borrower, and some may get more of a lift than others.
Here’s what to know about the new government loan-forgiveness plan, including how to determine if you qualify.
How much is being forgiven?
The Biden administration said that it will cancel up to $20,000 in Pell Grants, which are available to low-income undergraduate students who have exceptional financial need.
The administration said that borrowers who have non-Pell Grant debt will receive up to $10,000 in forgiveness.
How do I know if I qualify?
The chief criterion for eligibility is a person’s income, as the Biden administration said it is limiting debt forgiveness to people who earn less than $125,000. Married couples can earn up to $250,000 and still qualify for the program.
Because of the income cap, “no high-income individual or high-income household — in the top 5% of incomes — will benefit from this action,” according to the White House.
People seeking debt relief can provide either their 2020 or 2021 incomes in applying for loan forgiveness.
Can I apply for student loan forgiveness now?
Not yet. The Department of Education is working on what the White House describes as “a simple application process for borrowers to claim relief.”
However, it may not be ready until the end of 2022. The Biden administration plans to have the application ready before federal student loan repayments — which have been frozen since the pandemic erupted in 2020 — are due to begin on January 1, 2023.
Up to 8 million people may automatically receive loan forgiveness because their income data is already available to the Department of Education, the White House said.
Will I have to pay taxes on the loan relief?
No, because the loan forgiveness won’t be treated as taxable income, according to the White House.