What Graduate Borrowers Should Know About Biden’s Student Loan Forgiveness Plan

President Biden announced a landmark student loan forgiveness initiative last month. The plan, which is being enacted through executive authority, will provide up to $20,000 in federal student loan forgiveness for millions of borrowers. The initiative is unprecedented.  

Graduate student loan borrowers, who have often been threatened with exclusion from key federal student loan relief programs, can also benefit from Biden’s plan. But there are some nuances that borrowers should know.

Grad school loans can qualify for Biden’s student loan forgiveness plan

The good news for graduate student loan borrowers is that federal student loans taken out for graduate school – including federal Graduate PLUS loans – can qualify for student loan forgiveness under Biden’s plan.

All government-held federal student loans, including undergraduate, graduate, and Parent PLUS loans, can qualify for loan forgiveness.

Borrowers can be eligible for either:

• $10,000 in student loan forgiveness.
• Up to $20,000 if they received Pell Grants.

Federal Pell Grants – a form of financial aid that does not have to be paid back – are typically only awarded to undergraduate students. But having received a Pell Grant as an undergraduate student can still entitle a graduate student loan borrower to the $20,000 in student loan forgiveness.

Income limits still apply

Regardless of the borrower’s level of education, eligibility for Biden’s student loan forgiveness initiative is restricted based on income. To qualify for relief, borrowers must earn less than $125,000 annually, or $250,000 if the borrower is married.

Since graduate school borrowers tend to earn more than undergraduate borrowers, it’s important to evaluate income eligibility.

The Education Department recently clarified that Federal Student Aid officials will go by the borrower’s Adjusted Gross Income (AGI) as reported on either their 2020 or 2021 federal tax return. 

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Borrowers with FFEL loans may need to consolidate to qualify

Biden’s student loan forgiveness initiative only applies to federal student loans held by the Department of Education. This includes:

• All federal Direct loans (including those in default)
• Some non-Direct loans (including some FFEL-program loans)

Non-direct loans could be included if they, at some point, were transferred to, or became acquired by, the Department of Education.

Basically, if your loans have been covered by the ongoing Covid forbearance, there is a good chance it’s eligible for Biden’s student loan forgiveness.

But borrowers with privately-held FFEL loans do not automatically qualify for Biden’s student loan forgiveness plan.

Related: Privately Held Federal Student Loans: When and How to Get Forgiveness

The Education Department recently clarified that these borrowers can potentially become eligible by consolidating those FFEL loans into a federal Direct consolidation loan. Direct loan consolidation isn’t necessarily the right move for everyone, although many FFEL borrowers may benefit from consolidation in light of other new Biden initiatives, including the Limited PSLF Waiver (which expired October 2022) and the IDR Account Adjustment.

Biden administration officials have indicated they are working on trying to include commercially-held FFEL loans in Biden’s student loan forgiveness initiative without requiring consolidation, but so far those efforts are ongoing.

“[The Department of Education] is assessing whether to expand eligibility to borrowers with privately owned federal student loans, including FFEL and Perkins Loans,” says the Department on its newly-established FAQ page for Biden’s loan cancellation initiative.

“In the meantime, borrowers with privately held federal student loans, such as through the FFEL, Perkins, and HEAL programs, can receive this relief by consolidating these loans into the Direct Loan program.

Monthly payments may change after loan forgiveness is applied

The Biden administration estimates that millions of borrowers will become completely student debt-free through its loan forgiveness initiative. But many other borrowers will still have remaining balances to be repaid.

For borrowers who are repaying their loans under an income-driven repayment plan, the reduction in their loan balances following the application of loan forgiveness may not make a meaningful difference in monthly payments.

However, for borrowers who are repaying their loans under a Standard, Extended, or Graduated repayment plan, the Education Department will “recalculate your monthly payment based on your new balance, potentially reducing your monthly payment.” Details will be provided by your loan servicer.

The Department encourages borrowers to apply for loan forgiveness by November 15, 2022, to have this “re-amortization” benefit in place by the time the student loan pause ends August 30, 2023, unless the courts rule on lawsuits sooner than that. The application should be available sometime in October.

New income-driven repayment plan may be coming

Buried in the Biden administration’s student loan forgiveness announcement was the anticipated roll-out of a new, potentially more affordable income-driven repayment plan.

The Education Department will “create a new income-driven repayment plan that will substantially reduce future monthly payments for lower- and middle-income borrowers,” according to a statement last month.

This new plan will reportedly have a larger poverty-limit exemption (meaning a larger chunk of initial income will not be counted), as well as a more favorable repayment formula compared to existing plans.

The Education Department had originally proposed a new income-driven plan that excluded graduate student loan borrowers. While details on the revised plan are sparse, it appears that officials have backed away from a total exclusion of graduate student loan borrowers. Instead, borrowers with graduate school loans may just have to pay a bit more than borrowers who have only undergraduate debt.

“The proposed rule would… cut in half—from 10% to 5% of discretionary income—the amount that borrowers have to pay each month on their undergraduate loans, while borrowers with both undergraduate and graduate loans will pay a weighted average rate,” says the Department.

While this is potentially encouraging news for graduate student loan borrowers, the Department of Education has not released official details on the proposal. However, administration officials should release the plan in the coming weeks or months, and the new repayment option may be available by next summer.