Do you make too much for student loan forgiveness? Here’s what to know


If you’re one of the millions of Americans with student loans, President Joe Biden‘s forgiveness plan may be welcome relief.

However, there are some key things to know about the income limits, experts say.

Biden will cancel $10,000 for most borrowers or up to $20,000 for Pell Grant recipients, limited to those making less than $125,000 per year or $250,000 for married couples filing together or heads of household.

And financial advisors have already received a flurry of client questions, including whether their income may be too high to qualify for the debt relief.

More from Personal Finance:
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“I have a lot of clients who are somewhere on the cusp,” many of whom are mid-career, dual-earning households, said Ethan Miller, a certified financial planner and founder of Planning for Progress, specializing in student loans in the Washington, D.C., area. 

Adjusted gross income is the ‘magic number’

While eligibility may be simpler for borrowers far below or above the limits, it may be trickier for those near the $125,000 or $250,000 thresholds.

That’s because the number is based on so-called adjusted gross income, or AGI, which may be different than your gross salary.

“It’s the magic number,” Miller said, noting the U.S. Department of Education uses AGI for existing income-based student loan repayment plans.

You may be eligible for forgiveness if your AGI was below the $125,000 or $250,000 thresholds in either the 2020 or 2021 tax year.

And 2020 may be significant for anyone who lost a job or earned less during the first year of the pandemic, according to CFP Tommy Lucas, an enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.

How to calculate adjusted gross income

You calculate AGI by adding up your earnings — including salary, interest and more — and subtracting the items on Part II of Schedule 1 on your tax return, explained Lucas.

Some of those items may include deductible individual retirement account or health savings account contributions, educator expenses and more, he said.

For example, eligible couples under 50 who made deductible IRA deposits may have reduced adjusted gross income by $12,000 for 2020 or 2021. 

For most individuals, your gross income and adjusted gross income are going to be pretty close, if not the same.

Tommy Lucas

Financial advisor at Moisand Fitzgerald Tamayo

“The big one is the deductible IRA,” Lucas said. However, the deadline for 2020 or 2021 IRA contributions has already passed.

But if you made a deductible IRA contribution for either year, you’ll want to make sure it was included on Schedule 1 of your tax return and reflected in your AGI.

If not, you can consider amending your tax return electronically, especially if reducing your AGI by that amount “makes or breaks it” for forgiveness eligibility, Lucas said.

Of course, it may take time for the IRS to process an amended return, so you’ll want to act quickly, he said.

AGI may vary more for self-employed borrowers

If you’re a full-time Form W-2 worker without other income or deductible IRA contributions, it’s less likely you’ll see a difference between gross income and adjusted gross income, Lucas said.

Self-employed filers or contract workers, however, typically have more opportunities to reduce AGI, including certain retirement plan deposits, health insurance premiums, one-half of self-employment tax and more, he said.

“But for most individuals, your gross income and adjusted gross income are going to be pretty close, if not the same,” Lucas said.

Where to find your AGI

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