The proposal aims to eliminate the Public Service Loan Forgiveness program, end subsidized loans for low-income students, and make changes to income-driven repayment plans.
More than 45 million Americans currently owe a total of $1.5 trillion in federal student loan debt.
Yes, 1.5 trillion. That’s 11 zeroes: 1,500,000,000,000.
That’s a lot of money and yet somehow, those numbers are likely to rise under the Trump administration’s new budget plan.
The administration’s fiscal year 2021 budget proposal released earlier this month would slash federal funding for student loan programs by $170 billion over a 10-year period by eliminating the Public Service Loan Forgiveness program, ending subsidized loans for low-income students, and making changes to income-driven repayment plans.
These proposals are similar to ones made in previous years by the Trump administration and mirror other policy changes that “might be described as anti-borrower,” Mark Kantrowitz, a student loan policy expert, told COURIER.
The Democratic-controlled House is all but certain to reject Trump’s proposals, but here is how each of these changes would affect borrowers.
Ending the Public Student Loan Forgiveness Program
The federal government wants to eliminate the Public Student Loan Forgiveness (PSLF) Program, which would save the administration $52 billion at the expense of borrowers.
The PSLF Program was created in 2007 as a way to forgive student debt for borrowers who work full-time in public service jobs, such as teachers, firefighters, and social workers. The program allows Direct Loan borrowers who have made 120 monthly payments while working full-time for qualifying employers to have the remainder of their debt forgiven after their 10 years in repayment.
The Consumer Protection Financial Bureau estimates that 25% of American employees work in a public service job, and many of these workers may be eligible for loan forgiveness under the program. Borrowers could begin receiving forgiveness under the program in October 2017, and as of Dec. 31, 2019, 2,246 applications have been approved for loan forgiveness, resulting in $99.2 million in discharges for 1,565 unique borrowers.
Despite the small number of approved applications so far, Kantrowitz said the program has largely worked as intended.
“It’s getting people into public service jobs. Before you had Public Service Loan Forgiveness, there was a real concern about public defenders and prosecutors, because oftentimes they have six figures of debt from law school and they’re being paid $40,000 a year. That’s 2.5 to 1 debt-to-income ratio. It’s unsustainable,” Kantrowitz said. “But it’s not just them. Social workers have a master’s in social work and they don’t get paid very well. Public Service Loan Forgiveness makes it feasible for them to pursue these careers.”
Instead of ending the PSLF program, Kantrowitz believes it needs to be simplified. There are literally dozens of requirements that applicants must meet in order to qualify, and 76% of the 151,000 applications that have been processed so far were denied due to not meeting one of those requirements, according to data from the Department of Education.
“It’s a complicated program, there are lots of details you have to check the boxes on,” Kantrowitz said. “It’s a black box right now. Borrowers apply and they’re getting rejected, and they’re not really getting very clear explanations for why they’re getting rejected.”
Kantrowitz also supports changing PSLF from a back-end program, where debt is forgiven after 10 years of payments, to a front-end program. “For each year you work, part of your loans get forgiven,” he said of his idea.
Ending Subsidized Student Loans & Freezing Pell Grant Awards
The federal government currently offers subsidized Stafford Loans, which largely go to students from low- and middle- income backgrounds. These loans don’t accrue interest while a student is enrolled in college or during a six-month grace period after they graduate. The Trump administration wants to eliminate these loans, which would increase borrower costs by $18 billion over a 10-year period.
Kantrowitz doesn’t oppose the idea of ending subsidized loans, but believes the government should redirect those savings into the Pell Grant program, which is the largest federal source of grants for low-income students and provided nearly $29 billion to nearly 8.2 million students last year.
The Trump administration is proposing cuts without redirecting its savings to the Pell program. The administration is also proposing to freeze the maximum Pell Grant award over the next decade.
Reforming Income-Driven Repayment Plans
Income-driven repayment (IDR) plans allow borrowers to pay their student loans based on a percentage of their income, allowing them to make lower monthly payments over a longer repayment period, at the end of which they would have any remaining debt forgiven. As of December 2019, 8.2 million borrowers were enrolled in one of the five available IDR plans.
Trump’s budget proposal aims to consolidate the five existing IDR plans into one plan and force borrowers to pay more of their monthly income—12.5% as opposed to the 10% most borrowers currently pay.
The plan could benefit undergraduates in the long run, as their repayment period would be reduced from 20 to 15 years, but the change would saddle these borrowers with higher monthly payments during those 15 years. Things would be worse for graduate borrowers, who would not only see their monthly payments rise, but would also have to make payments for 30 years before they received debt forgiveness, instead of the current 20-25 years.
“Ultimately, this new plan would cost borrowers more, especially graduate students,” Kantrowitz said. “Far from being an improvement, for many borrowers, this would actually increase the cost.”
‘Government Has To Ante Up’
The Trump administration’s budget also includes other proposals that would cut funding for college students. These measures include, but are not limited to:
- Limiting graduate students to borrowing only $50,000 annually and a maximum of $100,000 over their lifetime.
- The elimination of the $865 million Federal Supplemental Educational Opportunity Grant which benefited nearly 1.7 million students in 2019.
- Slashing $680 million from the $1.2 billion Federal Work-Study Program, which subsidizes jobs 700,000 students each year.
- Eliminating the $108 million Strengthening Institutions Program, which provides funds to support institutions that serve large numbers of students of color.
- Cutting $140 million out of the $1.09 billion TRIO program, which helps 812,000 low-income and first-generation students prepare for and succeed in college.
These proposals are expected to be dead on arrival with Democrats in the House, and they would likely be unpopular with most people. Eighty percent of Americans agree that the government should make it easier for people with student debt to repay their loans, according to an October 2019 study by The Pew Charitable Trusts.
Education advocates were quick to blast the Trump administration’s proposal, drawing a sharp contrast between Trump and the 2020 Democratic candidates for president.
“Every Democrat running for president has expanded college opportunity as a core theory in how to grow the middle class,” James Kvaal, a former Obama administration official and current president of the nonprofit Institute for College Access & Success, told the Washington Post. “President Trump clearly doesn’t believe in that strategy.”
For example, Sen. Elizabeth Warren (D-MA) wants to cancel $50,000 in student debt for borrowers with household incomes under $100,000—which she says would benefit 95% of all borrowers. Sen. Bernie Sanders (I-VT), meanwhile, wants to eliminate all outstanding student debt.
Sanders’ plan in particular is popular with Americans; 58% of voters said they would support a plan to cancel all existing student loan debt, according to a September 2019 Hill-HarrisX poll.
Kantrowitz said any form of debt forgiveness should be “well-targeted at the need,” so that it helps borrowers who require help and not those who can afford to pay off their loan balances. He also advocates for allowing students to discharge their student loans, both federal and private, in bankruptcy, which is currently virtually impossible to do.
Ultimately, Kantrowitz says the “government has to ante up.”
“Government support of higher education has been declining for decades,” Kantrowitz said. “Public colleges are doing more with less. On a per-student basis, students are getting less support.”
The government has reason to invest in students, too.
“The government benefits when someone graduates from college because a bachelor degree recipient pays more than twice the federal income tax—due to having higher income—than someone with just a high school diploma,” Kantrowitz said. “Investing in the education of students is not just a good investment for the federal government and the state governments—there is no better investment.”