President Biden on Wednesday announced a plan to wipe out thousands of dollars in student loans for borrowers, with the goal of helping more than 40 million Americans who owe a total of $1.7 trillion in debt.
Student debt has skyrocketed in recent decades as rising higher education costs have far outpaced inflation. And the loan programs haven’t followed through, with the Biden administration noting that Pell Grants covered nearly 80 percent of the cost of a four-year public college, but today only provide enough support to pay for a third.
- Biden cancels up to $20,000 in student loan debt for millions of Americans, extending payment break
The burden of student debt has weighed on borrowers, preventing some from achieving milestones such as buying a home or raising a family due to financial constraints. But Biden’s loan forgiveness program won’t help all borrowers, and some may get more support than others.
Here’s what you need to know about the government’s new loan forgiveness scheme, including how to determine if you qualify.
How much is forgiven?
The Biden administration said it will cancel up to $20,000 in Pell grants, which are available to low-income college students who have exceptional financial need.
The administration said borrowers who have non-Pell Grant debt will receive up to $10,000 in forgiveness.
How do I know if I qualify?
The main criterion for eligibility is a person’s income, as the Biden administration has said it limits debt forgiveness to people who make 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 individuals or high-income households (in the top 5 percent of incomes) will benefit from this action,” according to the White House.
People seeking debt relief can provide their 2020 or 2021 income when 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 late 2022. The Biden administration plans to have the application ready before federal student loan payments, which have been frozen since the pandemic broke out in 2020, start on January 1, 2023.
Up to 8 million people can automatically receive loan forgiveness because their income data is now available from the Education Department, the White House said.
Will I have to pay taxes on the loan reduction?
No, because the loan forgiveness will not be treated as taxable income, according to the White House.
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