President Joe Biden’s idea to cancel student loans may be a pleasant relief if you’re one of the millions of Americans with debt.
But, according to experts, there are some important points to understand about the income restrictions.
With a cap on individuals making less than $125,000 annually or $250,000 for married couples filing jointly or heads of home, Biden will cancel $10,000 for the majority of borrowers or up to $20,000 for Pell Grant recipients.
And clients have already flooded financial advisors with inquiries about a variety of topics, including whether their income could be too high to be eligible for the debt relief.
“I have a lot of clients who are somewhere on the cusp,” According to Ethan Miller, a certified financial planner and the owner of Planning for Progress in the Washington, D.C., area, many of these families are in the middle of their careers and have two incomes.

Gross adjusted income is the “magic number”
For debtors well below or above the restrictions, eligibility might be easier, but for those close to the $125,000 or $250,000 criteria, it might be more difficult.
This is due to the fact that the calculation is based on adjusted gross income, or AGI, which may not be the same as your gross wage.
AGI is used by the U.S. Department of Education for its current income-based student loan repayment schemes, according to Miller, who called “It’s the magic number.”
If your AGI fell below the $125,000 or $250,000 levels in either the 2020 or 2021 tax year, you might be qualified for forgiveness.
According to CFP Tommy Lucas, an enrolled agent with Moisand Fitzgerald Tamayo in Orlando, Florida, 2020 may be noteworthy for anyone who lost a job or earned less during the first year of the pandemic.
What is the formula for adjusted gross income?
According to Lucas, you compute AGI by totaling your earnings, which include salary, interest, and other types of income, and deducting the items listed on Part II of Schedule 1 on your tax return.
According to him, some of such expenses could be teacher expenses, deductible donations to health savings accounts or individual retirement accounts, and more.
For instance, deductible IRA contributions made by eligible couples under 50 may have lowered adjusted gross income by $12,000 for 2020 or 2021.

“The big one is the deductible IRA,” according to Lucas. However, the cutoff date for IRA donations for 2020 or 2021 has already gone.
However, you must ensure that any deductible IRA contributions you made for any year were reported on Schedule 1 of your tax return and factored into your AGI.
If not, you might think about electronically updating your tax return, particularly if lowering your AGI by that much will “makes or breaks it” qualifying for forgiveness, according to Lucas.
You should move promptly, he advised, as it can take some time for the IRS to prepare an amended return.
Self-employed borrowers’ AGI may fluctuate considerably
It’s less probable that you will notice a difference between gross income and adjusted gross income if you’re a full-time Form W-2 employee with no other sources of income or deductible IRA contributions, according to Lucas.
However, he noted that self-employed individuals or contract workers frequently have more chances to lower AGI, such as specific retirement plan contributions, health insurance premiums, payment of half of self-employment tax, and more.
“But for most individuals, your gross income and adjusted gross income are going to be pretty close, if not the same,” Lucas said.
Where can you find your AGI?
Although there may be a few procedures involved in computing adjusted gross income, you can also see the amount on your tax return.
Look for line 11 on the first page of your tax return, also known as Form 1040, to find your AGI for 2020 and 2021, according to Miller.
“I think that it’s pretty straightforward for most people,” he added.