#1 Student Loan Lawyer
Updated on February 5, 2023
Graduate students have long carried a disproportionate burden of student loan debt, with nearly half of all federal student loan debt held by those with advanced degrees, according to a recent report from the Brookings Institute.
The harsh reality of deferred repayment and continuously accruing interest has led to ballooning balances for these individuals, who, despite being among the least likely to default, have seen their default rates rise in recent years.
With the COVID-19 pandemic driving an increase in graduate enrollment as undergraduate enrollment declined, the future looks even bleaker for these borrowers.
But as President Joe Biden aims to alleviate this crushing burden through his debt relief plan, the question remains: Will graduate student loans be included in this much-needed forgiveness?
Related: HBCU Loan Forgiveness
Biden’s student loan forgiveness
Last August, the president offered hope to federal student loan borrowers, including those who advanced their education through graduate or professional programs. The proposed loan forgiveness program could provide up to $20 thousand in debt relief for Pell Grant recipients and up to $10 thousand for other eligible borrowers.
But who’s eligible? If you made less than $125k as an individual or less than $250 thousand as a married couple filing jointly or head of household in 2020 or 2021, you’re in the running. The plan is open to those with undergraduate loans, Grad PLUS, and Parent PLUS Loans.
Related: Student Loan Forgiveness Salary Cap
Here’s the catch: If you took out loans from private lenders, refinanced your federal loan, or combined both federal and private loans, Biden’s plan won’t be available to you.
White House infographic for student loan forgiveness
There’s a workaround available to those who refinanced their federal loans into private student loans during the pandemic. The U.S. Department of Education plans to issue refunds of up to $20 thousand to people who paid offer their loans after the Covid-forbearance was put in place.
Related: Can Private Student Loans Be Forgiven?
The federal government will not tax the one-time debt relief thanks to a provision in the American Rescue Plan. But states may tax the amount forgiven. To opt out of the program, borrowers should contact their loan servicer by phone or email.
The future of graduate student loan forgiveness, as part of President Biden’s debt cancellation plan, remains uncertain as the Supreme Court will hear the case later this month with a ruling expected before the payment pause ends this summer.
Stay informed by visiting the Federal Student Aid website, StudentAid.gov, for the latest information.
FFEL borrowers are locked out of the loan cancellation
When the Biden administration first unveiled its plan for student loan debt relief, the hope was that even those with privately-held loans could participate. At first, consolidating these loans into a Direct Consolidation Loan was a solution.
But as legal challenges mounted, the White House was forced to close that door. The goal was to ensure the relief program would remain intact for the millions of other borrowers whose loans were already eligible for relief without the need for consolidation.
As a result, those with Federal Perkins Loans or Federal Family Education Loan programs held by private lenders and guaranty agencies are now out of luck — even if the Supreme Court gives the green light for the plan.
Despite this setback, there is still a silver lining for those with privately-held FFEL loans.
Related: Are FFEL Consolidation Loans Eligible for Forgiveness?
Other debt forgiveness opportunities
For FFEL borrowers left out of the president’s student loan forgiveness plan, there’s still hope for removing the burden of grad school loans. Through different programs offered by the Department of Education, those with graduate school debt can find relief.
The Public Service Loan Forgiveness Program offers a way for borrowers to have their Direct Loans forgiven tax-free by simply working full-time for a government or nonprofit organization and making 120 qualifying payments under an income-driven repayment plan.
And for those who don’t meet the PSLF eligibility requirements, there’s still a path to forgiveness through income-driven repayment plans. By making student loan payments for 25 years, a borrower can have their remaining loan balance wiped clean.
Related: How Income-Driven Repayment Plan Forgiveness Works
But you might not need to wait two decades for forgiveness. The Department of Education has plans to fast-track this timeline. The department is reviewing borrowers’ accounts to give them retroactive credit towards IDR forgiveness for monthly payments made under different repayment plans and time spent in long forbearances and some deferments.
Related: When Will the IDR Adjustments Be Made
Will graduate student loans be forgiven if I teach in a low-income school?
Yes, your graduate student loans may be forgiven if you teach in a low-income school. The Department of Education has two loan forgiveness programs for educators, the PSLF program and the Teacher Loan Forgiveness program.
PSLF offers more substantial relief by forgiving the entire loan balance of eligible borrowers, while the Teacher Loan Forgiveness program provides less than $20 thousand in loan forgiveness.
Keep in mind that you cannot qualify for both programs simultaneously. So if you have a higher loan balance, consider applying for the PSLF program for maximum relief.
More relief under the new IDR plan
The new income-driven repayment plan being rolled out by the Education Department, possibly later this year, offers a mix of good news and bad news for graduate loan borrowers. They won’t see the reduction in monthly payments from 10% to 5% of discretionary income like those with undergraduate loans. Instead, they’ll be subject to a weighted average rate between 5% and 10%.
But the increased income threshold before payments are required could be a significant win for graduate loan borrowers.
The threshold will increase from 150% of the federal poverty level to 225%, providing relief for lower and middle-income borrowers. It’s a testament to the Biden administration’s commitment to easing the burden of student loan debt for all Americans.
Grad loans qualify for federal student loan forgiveness under the president’s plan. But with the relief tied up in the courts, borrowers with loans from graduate school should explore other opportunities to get rid of their debt.