President Trump wants to end a popular student loan forgiveness program.
Here’s what you need to know.
End Student Loan Forgiveness
Trump’s new annual budget calls for several changes to student loans, which are part of a $5.6 billion cut in funding to the U.S. Education Department. As in previous years, Trump repeated his call to end public service loan forgiveness. Under Trump’s proposed budget, if passed by Congress, the Public Service Loan Forgiveness program would be eliminated.
The Public Service Loan Forgiveness program is a federal program created in 2007 by President George W. Bush that forgives federal student loans for borrowers who are employed full-time (more than 30 hours per week) in an eligible federal, state or local public service job or 501(c)(3) nonprofit job who make 120 eligible on-time payments over ten years.
Why Cancel Public Service Student Loan Forgiveness?
The president and Education Secretary Betsy DeVos have stated that they want to balance the needs of both student loan borrowers and federal taxpayers. Eliminating this program, they argue, would save the federal government money from not having to forgive potentially billions of dollars of federal student loans. Others believe that the program is vital to attract and retain individuals to enter public service and non-profit jobs, many of which pay lower salaries than private sector roles. Supporters of the Public Service Loan Forgiveness program believe that ending it could deter student loan borrowers from entering public service jobs, and could adversely impact public servants, including members of the U.S. Armed Forces, police officers, firefighters, first responders, prosecutors, public defenders and others. Importantly, the proposal would impact future borrowers, not existing borrowers who already work in public service and are currently paying off student loans.
“Cancel Student Loans”
This proposal to end this student loan forgiveness program differs drastically from several presidential candidates, including Sen. Bernie Sanders (I-VT) and Sen. Elizabeth Warren, who have offered plans to cancel student loans. Sanders wants to forgive all $1.6 trillion of outstanding student loans, including both federal and private student loan debt. Sanders’ student loan forgiveness plan has no eligibility requirements; all 45 million student loan borrowers are eligible for student loan discharge.
Warren wants to cancel student loan debt for more than 95% of borrowers, and would entirely cancel student loan debt for more than 75% of Americans with student loan debt. Warren’s plan cancels $50,000 in student loan debt for every person with household income under $100,000 and cancel substantial debt for every person with household income between $100,000 and $250,000.
What Trump Proposes Instead
Trump does not propose to eliminate all student loan forgiveness. Rather, he proposes to end the Public Service Loan Forgiveness program. Trump believes that reducing the number of student loan repayment plans will simplify student loan repayment and help borrowers pay off student loans faster. Importantly, federal student loan repayment plans can help you lower your monthly payment (even though interest accrues on your balance), but don’t expect to get a lower interest rate on your student loans. Trump has proposed an income-based repayment plan that would forgive federal student loans for undergraduate borrowers after 15 years of student loan payments. Currently, you can receive federal student loan forgiveness after 20 years (undergraduate) or 25 years (graduate school) under existing income-driven repayment plans. Like current income-driven repayment plans, borrowers under this proposed plan likely would be liable for income taxes on the amount of student loan forgiveness they receive.
Your Next Steps
Importantly, this proposal is part of a comprehensive budget. Congress decides federal spending and therefore decides whether to fund or defund a federal program. As Washington debates the future of your student loans, make sure you have a student loan repayment plan. Where should you start? Start with these four options – all of which have no fees:
- Student loan refinancing
- Student loan consolidation
- Income-driven repayment plans
- Student loan forgiveness