Discontinuing The Public Service Loan Forgiveness Plan
Introduced by President George W. Bush in 2007, the PSLF program has been slated by the Trump administration for likely removal from the federal budget. The program currently rewards qualifying nonprofit and government workers who make 120 qualifying monthly payments by wiping out the borrowers remaining education debt at the end of that period.
Discontinuing the PSLF plan was first proposed for the 2018 budget. After being dropped from the final iteration, it was again included for 2019. Ending this program could deter borrowers from pursuing a career in public service, government, law enforcement, teaching, etc., instead opting for the private sector.
In March 2018, Congress allocated an additional $350 million on a first come, first serve basis for those who qualified for forgiveness in October 2017. This signals that while the future of the program might be uncertain, borrowers already enrolled may be grandfathered in if a change is made. In the current budget, the proposed changes would apply to new loans after July 1, 2019.
What Trump Has Done So Far
The Trump Administration implemented the year-round distribution of Federal Pell Grants, instead of limiting these grants to the spring and fall semesters.
Trump allowed federal student loan borrowers to temporarily suspend payments with no interest accruing due to the economic impacts of the coronavirus pandemic.
The Tax Cuts and Jobs Act in 2017 made death and disability discharge for student loans tax-free from January 1, 2018 to December 31, 2025.
Trump signed the SECURE Act, which expanded the benefits of 529 college savings plans by adding student loan payments and cost of apprenticeship programs as qualified expenses.
The U.S. Department of Education has released an app version of the Free Application for Federal Student Aid .
The U.S. Department of Education provided $359.8 million in federal assistance to 20 states and the U.S. Virgin Islands to assist with the cost of educating students displaced by Hurricane Harvey, Irma, Maria, or the 2017 California wildfires.
The Trump Administration has issued regulations to limit the amount of student loan forgiveness available to defrauded borrowers who file a defense to repayment claim.
Blanket Loan Forgiveness Benefits Higher Earners
Researchers at the University of Chicago found that broad student loan forgiveness would give substantial benefits to higher-income people, more than the benefits to lower-income people. They determined the present value gains from loan forgiveness by estimating repayment and forgiveness under current law, including the assumption that taxation of forgiven amounts is ended. They found that if the federal government forgave $50,000 per borrower, the bottom 20% of earners would get 8.5% of the benefit. The top 20% of earners would get 22% of the total debt wiped out. Democrats would give the benefits to these higher-income people, including those now working as doctors and lawyers, regardless of whether they needed help or not. Analyses of other loan forgiveness proposals from Democrats in recent years reached similar conclusions.
Some experts also have observed that broad student loan cancellation would be a weak economic stimulus. Another criticism is that such a large taxpayer-funded bailout would far outstrip federal spending on programs that have been carefully directed at helping Americans with lower incomes, such as Pell Grants and Temporary Assistance for Needy Families.
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Eliminate Most Repayment Plans In Favor Of A Single Income
President Trump has proposed the elimination of all the income-driven repayment plans and replace them with a single income-driven repayment plan.
This new repayment plan would cap borrower’s monthly payment at 12.5% of their discretionary income. It would also provide for student loan forgiveness at 15 years for undergraduate borrowers, and 30 years for graduate borrowers.
Trump has made comments that he would like the government to cover the cost of student loan forgiveness under his new plan – which leads us to believe that it would be tax free student loan forgiveness. However, this has not been clarified, and it would be different than the current existing income-driven repayment plan programs.
Verdict: Mixed.
Some borrowers will benefit by seeing their income driven repayment amount drop to 12.5%, while others will lose by seeing it rise from 10%. Also, the repayment term of 15 years could benefit a lot of undergraduate borrowers, but the 30 year graduate term is longer than all existing plans today. Finally, the forgiveness aspect is important – a shorter repayment term could mean bigger forgiveness, but if that’s taxable, that could be harmful.
Donald Trump On Student Loan Forgiveness
Student loans are a hot button issue and a topic of fierce debate as we approach the 2020 election. According to the Federal Reserve, the national student loan debt has reached an all-time high. As of the third quarter of 2019, student loan debt reached $1.5 trillion.
Student loan balances have become a major crisis, with millions of borrowers unable to pay down their debt. In fact, the Brookings Institute reported that nearly 40 percent of borrowers may default on their student loans by 2023.
President Donald Trump has already enacted some changes surrounding student loan forgiveness and education policies, and he has more changes planned. Heres what you need to know about Trumps ideas for student loans.
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Will Biden Forgive Student Loans
Biden was a big proponent of student loan relief during much of his campaign. The coronavirus pandemic and social-justice protests/riots now have him singing a more forgiving tune.
Bidens plan would forgive all undergraduate federal student loan debt for people earning less than $125,000 a year who attended public institutions or historically black colleges and private minority-serving schools.
Biden would keep the PSLF program but rev up the F part. Only undergraduate loans would apply, but youd pay 5% of your discretionary income. So that $25 monthly payment under Trumps plan would be $10 under Bidens.
Whats more, it would be $0 if you make less than $25,000 a year. Forgiveness would come after 20 years, and that unpaid balance would not be taxed.
Democratic senators have called on the next president to cancel $50,000 in student loan debt for all borrowers. The president could do that via executive order, so he wouldnt even have to get the approval of Congress.
Biden had earlier supported lopping $10,000 off everyones tab, which was a proposal in the $3 trillion HEROES Act the House of Representatives approved, but the Senate rejected. He reportedly is now in favor of the $50,000 discount.
Speaking of Congress and coronavirus relief
Trump Vs Biden: What College And Student Debt Changes Are Likely
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With voting in the 2020 presidential election just days away from drawing to a close, recent debates and town halls have added little detail to the platforms offered by President Donald Trump and Democratic nominee Joe Biden.
Yet the results of the election are very likely to change the way you repay student loans, whether debt forgiveness is in your future and even how you or your children pay for college. Campaign proposals are no guarantee of laws to come, but they show which ideas are taking root.
Here are the student loan and college proposals that policy experts say might bear fruit:
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Trump Doesnt Cancel Student Loan Debt
Another possibility is that Trump effectively ignores the resolution and doesnt cancel student loan debt. This is the likely outcome. Why? Trump and DeVos have made it explicitly clear that widespread student loan forgiveness is not the focus. Similarly, Republicans in Congress also dont support widespread student loan debt forgiveness for every student loan borrower. However, Trump supports student loan forgiveness through income-driven repayment plans. At this stage, Warren and Schumer have proposed legislation. However, Congress likely will not pass this legislationespecially before the election on November 3. There have been multiple proposals for student loan forgiveness during the Trump administration. However, Congress didnt pass any legislation that would forgive student loans for every borrower, so the president could not sign any legislation. Plus, Congress is focused on finalizing a continuing resolution to fund the government after September 30. Most members of Congress also are expected to spend most of October campaigning for re-election. There is also the looming possibility that Congress passes a stimulus package before the election, although thats looking increasingly unlikely. At this juncture, a continuing resolution and potential stimulus deal would take precedent over a student loan forgiveness resolution.
What Is Student Loan Forgiveness
Student loan forgiveness simply has to do with leaving the amount left on the student loan of people who undertake qualified jobs, such as teaching in a high-need area who has repaid the loan for a specific length of time.
Loan discharge is rare but can be granted to borrowers who cant repay the loan for a variety of reasons such as death, disability, fraud, identity theft, and in very scarce circumstances, bankruptcy or closure of the school where the loan was taken.
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Trump Ordered The Education Department To Eliminate Every Penny Of Federal Student Loan Debt Owed By American Veterans Who Are Completely And Permanently Disabled
This article was republished here with permission from The Associated Press, however it is no longer available to read on Snopes.com.
LOUISVILLE, Ky. Hundreds of millions of dollars in federal student loan debt owed by tens of thousands of disabled military veterans will be erased under a directive President Donald Trump signed. Trump ordered the Education Department to eliminate every penny of federal student loan debt owed by American veterans who are completely and permanently disabled. Trump said they wont have to pay federal income tax on the forgiven debt and called on states
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Upgrade Student Loan Servicing
A common complaint among federal loan borrowers is how complex and outdated loan servicing is right now. The Department of Educations budget would allocate $1.8 billion to upgrade the loan servicing systems. Dubbed the Federal Student Aids Next Generation Financial Services Environment, the new system would be modernized complete with mobile capabilities and designed to help students identify financial aid opportunities and increase efficiencies.
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Allow Student Loans To Be Discharged In Bankruptcy
This proposal comes from the Department of Education, which announced that it was seeking comments on how to determine “undue hardship” to allow student loans to be discharged in bankruptcy.
It’s important to know the history of this. Before 1998, student loans could be discharged in bankruptcy after the seventh year of repayment. However, after 1998, student loans were prohibited from being discharged in bankruptcy except in cases of “undue hardship”
However, Congress never defined what undue hardship meant, and so the courts have taken it upon themselves to decide – and it’s not always uniform.
Regardless, undue hardship is a very high bar to clear – because you essentially have to prove that you’d never be able to afford your loans, even on an income driven plan, for the rest of your life. Given that income-driven plans offer such low payments based on income, it’s tough to prove.
It’s why many people simply write off the ability to get student loans discharged in bankruptcy, even though it’s theoretically possible.
Verdict: Mixed.
For some borrowers, the ability to get out from un-payable student loan debt would be a blessing. Just read . There are clear cases where student loan debt is un-payable and is an undue hardship.
Long Road Ahead Still
The Biden Administrations brief, though, is only the start.
There will likely be more legal filings before the Supreme Court hears oral arguments in late February and renders an opinion. Opponents in the Texas and 8th Circuit cases have until Jan. 27 to submit their brief, and DOJ has until Feb. 15 to respond.
The arguments about the plaintiffs lacking legal standing seem strong. The arguments on the merits are somewhat weaker, Mark Kantrowski, , told Yahoo Finance. During the hearings we may get a sense as to the direction the court will take based on the questions asked by the justices. A ruling could come as early as March or as late as June/July.
In the meantime, borrowers should update their contact information with their loan servicer and on StudentAid.gov, and start saving an amount equal to their monthly payments to prepare for the restart of student loan repayment, Kantrowitz said.
President Biden last month extended the payment pause on federal student loans until . If litigation has not been resolved by then, payments will begin 60 days after that.
For borrowers who are worried about restarting payments, Cody Hounanian, executive director of the Student Debt Crisis Center , recommends they look into different student loan repayment options as well as updates to the Public Service Loan Forgiveness program.
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Pay Into The Principal
Before you start deferring your federal student loans and prolonging your debt, consider taking advantage of this long zero-interest period, especially if you’re still employed, you have an emergency fund and no credit card debt.
The extended federal loan deferment could be an opportunity for borrowers to accelerate their payoff progress, argues McClary. With interest waived, any payments you make during this time will go directly toward chipping away at the principal. So, when your payments do eventually resume, interest will collect on a lower balance and your overall debt load will be smaller.
“The suspension of interest on federal student loans makes those payments even more impactful,” McClary says. Plus, the earlier you can pay off your student loans, the better.
Policy Implications And Conclusion
The Trump administrations student loan proposal outlined in the fiscal year 2018 budget addresses a number of problems in the current program. Most importantly, it rolls back the large subsidies that the Obama administrations changes to IBR provide to graduate students. As this analysis shows, the Obama administrations changes provide loan forgiveness to borrowers with graduate school debt even if they earn middle incomes, or high incomes if they have large enough debts. The case for providing a safety net to borrowers through IBR is sound, but the current IBR program goes far beyond that goal in the benefits it provides to graduate students. Graduate students already have a four-year college degree, which makes them a relatively elite group. Providing subsidies for graduate educations skews benefits to upper middle-class families while low-income families still struggle to finance an undergraduate education.
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Combined Ibr And Subsidized Stafford Loan Proposal
Next we combine the effects of Trumps proposal to eliminate Subsidized Stafford loans with the changes to IBR. We have already described how a borrower who fully repays his loans pays more in total due to the loss of Subsidized Stafford loans because the borrower leaves school with a larger loan balance that now includes accrued interest from the time spent in school. However, if the same borrower receives loan forgiveness under the Trump proposal, that additional debt is forgiven anyway. While the borrower leaves school with a higher loan balance under the Trump proposal, the extra interest is forgiven and then some if the borrower uses IBR: total payments under the Trump proposal are less than they are under the current IBR program with Subsidized Stafford loans. The Trump proposal delivers larger benefits even with the loss of Subsidized Stafford loans for borrowers who use IBR and qualify for loan forgiveness.
We can illustrate this using the two earlier examples. For the first example, we treat the borrowers $15,000 loan balance as Subsidized Stafford loans. To simulate the loss of that benefit we assign him a higher initial balance when he begins repayment to reflect the additional accrued interest. Under current law the borrower starts repayment with a $15,000 balance and repays it using the current IBR program under the Trump proposal the balance begins at $16,950 and is repaid using the Trump IBR proposal.
Figure 4
Figure 5
Wait Wasn’t Your Debt Forgiven
In a long Twitter thread Biden pointed out how much in PPP loans that Greene and others had forgiven.
The same is true of thousands of other individuals and businesses. This would include two-faced members of some media companies, like the conservative Daily Caller, where its Steven Crowder tweeted, Student loan forgiveness sounds really nice to illegal immigrants, people with no life experience, people who dont have families yet, and people who use preferred pronouns.
He failed to point out that the Daily Caller News Foundation had a $300,000 loan forgiven.
In Arizona alone, more than 11,326 small businesses, large companies, casinos and nonprofits in Arizona received an estimated $7.08 billion from the federal government in PPP money.
Among the big winners were 132 charter schools, some of which, by way of reporting from former Arizona Republic great Craig Harris, didnt seem to need the money.
Over the years the government has bailed out airlines, the automobile industry, insurance companies and banks, banks and more banks.
Then, there is Donald Trump.
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Will Student Loan Relief Applications Be Reopened
It depends on what happens during the appeals process.
The appeal from the White House will be heard by a three-judge panel of the New Orleans-based 5th US Circuit Court of Appeals, which is dominated by conservative judges who have obstructed previous Biden administration policies.
It could take weeks, and potentially months, for a final ruling to be issued. All applications from borrowers will be put on hold until then.
If the government loses its appeal, the legal challenges could ultimately end up in front of the Supreme Court.
There are further complications, too, because of other legal challenges to the scheme, such as one brought by six states seeking to block the policy. That is currently being considered by an appeals court.
But with student loan payments set to resume in January – following a stay during the Covid-19 pandemic – the government finds itself unable to offer the relief it has promised.
