Trump Student Loan Forgiveness Proposals

Trump Student Loan Forgiveness Proposals

There have been a lot of proposals that people have been concerned about with the Trump administration. It’s important to note that none of these proposals are the law, but that doesn’t mean they aren’t changes the President wants to see.
Whether you’re for or against these changes, you need to know what they are and what they could mean. Then you should voice your concerns to your representative in Congress.

 

Elimination Of Public Service Loan Forgiveness (PSLF)

President Trump, along with Betsy DeVos, have called for the elimination of Public Service Loan Forgiveness (PSLF) on several occasions. PSLF is one of the top ways to get student loan forgiveness in the United States.
In his first budget proposal for 2018, he attempted to defund PSLF. This raised a series of legal questions (because whether there is money or not, it’s still the law, so what would the Department of Education do), and eventually the proposal was dropped.
However, in his next budget for 2019, Trump has once again proposed eliminating Public Service Loan Forgiveness.
It’s important to note that the proposed changes would apply to new loans after July 1, 2019. So, it currently appears that those with existing loans would be grandfathered in.
Changes to loans would apply to borrowing after July 1, 2019, not including those loans provided to borrowers to finish their current education.

 

Elimination Of Subsidized Student Loans

Trump has also proposed the elimination of subsidized student loans in his 2019 budget proposal. Subsidized student loans provide student loan borrowers with significant assistance – with the government paying for interest accrued during school. This can result in significant savings for borrowers.
The government issued 5.7 million subsidized student loans in the 2016-2017 school year. These loans go towards students with a financial need, based on filling out the FAFSA.

 

Eliminate Most Repayment Plans In Favor Of A Single Income-Driven Repayment Plan

President Trump has proposed the elimination of all the income-driven repayment plans (IBR, PAYE, RePAYE, ICR) 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.
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.

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.

Elimination Of The Student Loan Interest Deduction

In the Tax Cuts and Jobs Act, Trump originally proposed eliminating the student loan interest deduction. While it was saved in the final bill, it doesn’t mean that Trump still wants to see it eliminated.
The student loan interest deduction provides up to $2,500 in deduction of the interest you paid on a student loan.

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