President Donald Trump came into office in January of 2017. What has he done or said since then about student loans and student loan forgiveness? A lot. We’ll break down everything you need to know about Trump student loan forgiveness and student loan legislation and proposals.
Trump Student Loan Forgiveness
Trumps Changes to Student Loan Forgiveness
On December 22, 2017, the Tax Cuts & Jobs Act was passed into law. Within the 429-page document, there are changes made to existing laws that significantly affect current students and those with student loans, as well as parents who claim dependents that are still enrolled in college.
Student Loan Discharges No Longer Taxable Income
Section 11031 of the Tax Cuts & Jobs Act prevented student loan discharges through total and permanent disability (TPD) from being added to the borrower’s gross income. Under the new law, discharged student loans are no longer seen as taxable income if the borrower is applying for disability discharge. This is a hugely beneficial change for disabled borrowers who want to apply to have their federal student loans discharged. Previously, many borrowers elected not to apply for discharge and remained in an income-driven repayment plan because they feared being left with a hefty tax bill that they couldn’t afford.
American Opportunity Tax Credit Improved
The American Opportunity Tax Credit has been improved by the Tax Cuts & Job Act. This is one of the more popular deductions for student loans that allows up to a $2,500 deduction for qualified education expenses for the first four years of higher education. The IRS data show that nine million Americans applied for this tax credit in 2016. The Tax Cuts & Jobs Act has increased the allowable deduction period to five years instead of four, but the fifth year is at a reduced $1,250 deduction. This is great news for students who take longer than four years to finish college. The deduction is calculated as being 100% of the qualifying educational expenses incurred up to the first $2,000, and after that it’s 25% of the next $2,000 for a max of $2,500.
Trumps Currently Proposed Changes to Student Loan Forgiveness
Simplify Repayment Options
President Trump’s proposed 2020 budget, released in March 2019, calls for Congress to consolidate all existing income-driven repayment plans into one new repayment plan. The new income-driven repayment plan would cap monthly payments at 12.5% of the borrower’s discretionary income. Currently, borrowers on income-driven repayment plans pay around 10 percent of their discretionary income, so this policy would raise monthly payments.
Undergraduate students would have their loans forgiven after 15 years of monthly payments and graduate students would have their loans forgiven after 30 years of monthly payments. Basically, undergraduate student loans would be forgiven five years sooner than the current plans and graduate student loans would be forgiven five years later. This means that undergraduate students would save money on interest but pay more each month and graduate students would pay more interest over time.
If the budget passes, borrowers would no longer need to figure out which repayment plan is best for them, so the process would be a lot simpler. Plus, Trump also wants Congress to allow the Department of Treasury to—with the borrower’s consent—automatically give the Department of Education income tax data. The Department of Education would use the income tax data for applications and renewals for financial aid and income-driven repayment plans.
President Trump can implement his proposed student loan repayment plan through the Department of Education. It does not require congressional approval. Trump would be following the same regulatory process that President Obama used to create repayment plans while he was president.
Eliminate Public Service Student Loan Forgiveness
In the proposed 2020 budget, President Trump eliminates the Public Service Loan Forgiveness program. Presumably, students who borrow or have borrowed student loans prior to July 1, 2020 would still remain eligible for PSLF. Borrowers who take out a new federal student loan starting July 1, 2020 would not be eligible for the PSLF. If this part of the budget passes, it’s estimated to save the federal government a lot of money.
Nothing is set in stone yet with the PSLF, but it’s better to take action sooner rather than later. If you are eligible for Public Service Loan Forgiveness, there are a few things you can do to give yourself the best chance at remaining eligible for PSLF should the program be eliminated in 2020.
- Determine if you are eligible for Public Service Loan Forgiveness and learn about the program. Understanding the program is important if you’re banking on it for loan forgiveness.
- Make sure that your loans are in the Direct Loan Program and consolidate your loans if necessary. Consolidation will group all your eligible federal student loans into one direct loan with a single interest rate. It will also make you eligible for income-driven repayment plans, one of which you must enroll in if you’re interested in PSLF.
- If you’re already in the Direct Loan Program and eligible for Public Service Loan Forgiveness, certify your employment status immediately. Print and mail in the PSLF Employment Certification Form or submit your application online if your loans are already with FedLoan Servicing.
- Submit an Employment Certification Form at least once per year, especially if you change jobs a lot. You have the best shot at getting approved for PSLF if there’s a paper trail of your employment history and on-time payments. Submitting the form is free and there’s no limit to how many times you can turn it in.
There’s no guarantee that following the above steps means you’ll receive Public Service Loan Forgiveness but being in the program prior to any law changes is likely to improve your chances of receiving it.
Extend Loan Forgiveness to Everyone
Given the recent hiccups with the Public Service Loan Forgiveness program, President Trump proposes that Congress should extend loan forgiveness to all undergraduate student loan borrowers. Borrowers would become eligible for forgiveness after 180 months (15 years) of repayment on an income-driven repayment plan. This proposal eliminates the career eligibility criteria associated with the Public Service Loan Forgiveness program. It would also make it easier for the government to carry out the application and forgiveness process.
Eliminate Subsidized Student Loans
Subsidized student loans are a form of need-based aid currently awarded by the federal government. While borrowers do still have to pay back subsidized loans, the loans come with perks like no interest payments while you’re still enrolled in school and partial interest forgiveness under certain repayment plans. President Trump’s 2020 budget calls to eliminate subsidized student loans. If this happens, students would have to rely more on unsubsidized student loans, which accrue interest while the student is enrolled. This means students would spend more paying back their loans and the government would make more money from the interest payments.
Trump Tried to Change but Did Not Pass Into Law
Public Student Loan Forgiveness Elimination
In the spending bill passed by Congress in March 2018 to fund the government through September, Congress went against many of the Trump administration’s budget proposals including doing away with the Public Service Loan Forgiveness Program. Instead, Congress allocated $350 million for the Department of Education to help borrowers with previously unqualified repayment plans gain student loan forgiveness, and President Trump signed it into law.
The purpose of the PSLF was to entice graduates to take qualified public service jobs that served the community and to grant forgiveness of all student loan debt for those borrowers after 120 payments over 10 years into an income-driven repayment plan. Normally, to be eligible for forgiveness under PSLF, you must be on an income-driven repayment plan. The $350 million is earmarked for those who meet all qualifications but were paying into a graduated or extended repayment plan, which are not normally eligible. However, $350 million is unlikely to cover all who apply. This new program is known as the Expanded Temporary Public Service Loan Forgiveness program.
Trumps Stated Viewpoints on Student Loan Forgiveness
- Eliminate the Public Service Loan Forgiveness program in place of a less biased loan forgiveness program
- Consolidate all current repayment plans into a single income-driven repayment program (IBR) to simplify the loan repayment process
- Lower federal spending accordingly to account for the cost of his new income-driven repayment plan
Trump on Student Loans
Student loan forgiveness is important, but what about Trump on student loans in general? While President Trump hasn’t made many drastic changes to student loan legislation, he plans to make changes in the future.
Trump Student Loan Legislation That Has Been Passed Into Law
Removed Obama-Era Protections for Borrowers
In 2015, President Obama’s Administration issued a memo that prohibited debt collectors from charging high-interest rates on past-due student loans. The memo only applied in cases where borrowers entered a federal loan-rehabilitation program within 60 days of defaulting on the loan. It restricted the bank-based Federal Family Education Loan Program (FFELP) from charging up to 16% in interest. Basically, borrows seeking to rehabilitate their loan were to be spared from harsh collection fees.
In 2017, the Department of Education, under the Trump Administration, issued a memo that removed the 2015 Obama-era protection for student loan borrowers who want to rehabilitate their FFEL loans. By making rehabilitation of privately held loans less attractive, borrowers are more likely to skip rehabilitation and immediately consolidate their FFEL loans into the Federal Direct Loan Program to take advantage of income-based repayment programs. When borrowers take this action, it moves loans from private balance sheets to the federal government, growing the federal government’s involvement.
Trumps Current Proposed Changes
Here are a few initiatives that the Trump Administration currently has in the works:
Accelerate Program Completion
The quicker you’re able to complete college, the less money you’ll need to borrow. Unfortunately, colleges often force students to retake courses they took a previous college or to relearn information that they’ve already learned on the job or in the military thus extending the amount of time spent in the classroom. Trump wants to encourage “accelerated learning pathways,” which enable students to get credit through prior learning assessments (PLAs) for what they already know. In his proposed reforms to the Higher Education Act, President Trump states that Congress should require higher education institutions to include information about prior learning assessments as part of their financial aid award letter. Schools should also be required to include information about whether aid is available to cover the cost of PLAs.
Expand Pell Grant Eligibility
In their proposal to reform the Higher Education Act, the Trump Administrations mentions expanding Pell Grant eligibility to include more than just traditional two-year or four-year degree programs. The reform would expand eligibility to include short-term programs where students earn a certification, license, or credential. However, it would only apply to high demand fields. What those are has yet to be specified.
Reform Federal Work Study
The need-based Federal Work Study (FWS) program provides guaranteed on-campus jobs to qualifying students. For the most part, students hold part-time jobs that don’t pertain to any specific career path or develop career-related skills. This includes common work-study jobs like food services worker, janitor, or library desk clerk. In proposed reforms to the Higher Education Act, the Trump Administrations calls for an overhaul to the FWS program. They propose that work-study jobs should instead build workplace skills and help students gain career experience. In turn, this would increase the chances of a low-income student obtaining a well-paying job upon graduation.
Cut Funding to Work Study
Trump’s proposed 2020 budget would also slash funding to federal work-study programs by 56 percent. Instead of allocating $1.13 billion in federal work-study aid as Congress did in 2019, President Trump’s budget only allocates $500 million for the program. Students could still work on their college campus and get paid directly from the college, but fewer students would receive work-study aid as part of their financial aid package, which is paid for by the government.
Limits for PLUS Loans
Current legislation places limits on the amount of money undergraduate students can borrow from the federal government, but it doesn’t place limits on Parent and Grad PLUS loan borrowing. Trump proposes placing limits on how much money parents and graduate students can borrow through the PLUS Loans program. Specific numbers are not yet being mentioned, but the proposal is part of Trump’s reforms to the Higher Education Act.
College Financial Aid Office Reform
A disconnect exists between financial aid administrators and the students attending or applying to a college. The Trump Administration wants Congress to give financial aid administrators more information and more authority so that they can work with students to minimize student loan borrowing. Trump also wants Congress to require all higher education institutions to offer students more effective and frequent financial aid counseling. Right now, most students only undergo online loan entrance counseling when they first take out loans and then go through exit loan counseling four years later at graduation. These reforms are proposed additions to the Higher Education Act.
Cut Funding to the U.S. Department of Education
In March 2020, President Trump released his 2020 budget proposal. In it, he proposes cutting funding for the U.S. Department of Education by $7.1 billion—a 10% decrease compared to their 2019 funding. The implications of the budget cuts aren’t entirely clear at this point. Keep in mind that the budget proposal will be reviewed by Congress and that Congress ultimately passes the budget.
Trump Tried to Change but Did Not Pass Into Law
During his time as the president, Trump tried to make a few changes regarding student loans, but they ultimately didn’t stick.
Graduate Tuition Waivers Will Be Taxed
Graduate students often take up jobs at their university in exchange for a tuition waiver. These grads are usually working on research, teaching in a classroom, and trying to earn their graduate degree at the same time. The school will waive a portion of their tuition, most often into the many thousands of dollars, in exchange for their work. Historically, the IRS does not see that tuition waiver as taxable income.
In 2018, President Trump tried to pass legislation that would have required graduate students to pay taxes on their tuition waivers. The proposal was removed from the final version of the law that was passed. If Trump’s proposal had succeeded, it would have required graduate students to pay taxes on waived tuition fees even though they may not have earned any actual income that year. For example, a graduate who earned a $25,000 tuition waiver and is in the 12% tax bracket would have a tax bill of $3,000 dollars even if their “money in the bank” income is $0.
Lifetime Learning Credit Elimination
The Tax Cuts & Jobs Act originally proposed repealing the Lifetime Learning Credit, which allows a credit offset of 20% on the first $10,000 of your education expenses. This translates into a deduction of up to $2,000, which could be used for many years as you had education expenses. The big difference between the American Opportunity Tax Credit and the Lifetime Learning Credit is that the latter allows for deductions based on vocational expenses. Removing this tax credit would hurt those who are looking to improve their skill and gain useful hands-on training in a field that may not be available at a traditional university.
Interest Deduction Elimination
One big change presented in the Tax Cuts & Jobs Act was to eliminate interest deductions for student loans starting in 2018. Currently, if you are earning under $65,000 per year as a single person, or $130,000 per year if you are married and filing jointly, you are eligible for an interest deduction on your student loans of up to $2,500. IRS records show that in 2015, there were 13.4 million people who claimed that deduction and that the average deduction was $1,100. For someone in the 25% tax bracket, that would translate to a reduced tax liability of $275. It’s not a huge amount, but for a struggling individual trying to make ends meet, every dollar matters.
Trumps States Viewpoints on Student Loans
- Scale back funding significantly for the Department of Education starting with a 10% decrease their funding according to Trump’s proposed 2020 budget
- Students need access to more information about debt loads and future earnings for every major at every higher education institution. In March 2019, Trump announced that he would require the U.S. Department of Education and Treasury Department to publish this information.
- In 2015, Trump stated that the government shouldn’t be making money on student loans. He has not reiterated or retracted the statement since he became President. There are no plans to lower interest rates at this time, which would be the only way to lower government profits on student loans.
- Colleges should cut tuition costs by reducing large administrative costs. Trump said this in 2016 but has not reiterated or retracted the statement since.
- While on the campaign trail, Trump stated that universities should invest endowment money to reduce costs for students or risk losing their federal tax breaks on that endowment money. No action has been taken yet by Trump.
- Reduce federal regulations on colleges to reduce their compliance costs so they can pass those savings along to students
Things to Look Out for in The Future
The Trump administration has released a lot of proposed initiatives over the past few months, but they haven’t addressed everything. Here are a few things to look out for in the future:
- Tax implications on forgiven student loan amounts
Right now, loans forgiven under the PSLF are viewed as non-taxable income by the IRS. Is Trump going to change that for borrowers currently enrolled? Will forgiven loans under his proposed income-driven repayment plan be taxed? The answers to these questions will have huge implications for borrowers.
- Bankruptcy reforms
Discharging student loans in bankruptcy is nearly impossible. Is Trump planning to change this? There’s no mention of bankruptcy reforms yet, but it’s something to look out for in the future.
- Private Loans
Private student loans don’t come with the same protections, repayment plans, or forgiveness programs offered by the federal government. Right now, it’s not known if any of Trump’s plans will affect private student loan lenders or private student loans. Since private student loans present a huge financial burden to borrowers, legislation in this area could go a long way toward helping students cope with high monthly payments.
- Student Loan Interest Rates
While on the campaign trail, Trump stated that the federal government should not be profiting off student loans. Reducing interest rates is the only way to minimize government profits from student loans. Is Trump planning to lower federal student loan interest rates? It’s not part of any currently proposed legislation, but it could come up again in the future.
Recommendations for Borrowers
1) Trump is clearly in favor of a single income-driven repayment program going forward, which will have a shorter forgiveness period than the version currently in place. If you are in distress or in default on your loans, you don’t have to wait for his program to take effect. You can enroll in one of the available income-driven repayment programs. Read about your Student Loan Repayment Options to see which plan you’re eligible for. Eligible for more than one? Use our Student Loan Payment Calculator to determine what your monthly payments would be on each plan.
2) Make sure to stay current on your student loans payments and out of default status. This is important because, in the past, new student loan programs have been more difficult for those in default to enroll in. Keeping your loans in good standing is the best way to keep your options open going forward.
3) At this point, there is no information available about how Trump’s student loan policies will affect private loans, if at all. If you’re struggling to keep up with your private student loan payments, speak with your lender about your options. Your lender may be able to offer you a temporary deferment or reduced monthly payment as you get your finances in order. Private refinancing is another option that can lead to more manageable monthly payments.
4) President Trump’s proposed reforms to the Higher Education Act and his 2020 budget are not laws yet. They first need to be discussed by, potentially amended by, and voted on in Congress. If you have strong feelings about his proposed changes—either positive or negative—reach out to your Congressional representatives. Write a letter or email explaining your thoughts on the matter. These decisions affect borrowers like you, so it’s important that your voice is heard by the people in Washington who are supposed to represent you.
Obviously, there are still a lot of questions in the minds of student loan borrowers about how Trump’s future policies will affect them. Rest assured that as things develop, Student Debt Relief aims to provide student borrowers with the most up-to-date information and guidance.
Will Trump forgive my student loans?
While nothing is set in stone, it seems very likely that whatever program Trump implements will offer loan forgiveness at the end of the repayment term. His most recently proposed legislation indicates that forgiveness would be after 15 years of payment for all borrowers.
How do I get signed up for student loan forgiveness?
Make sure your federal loans are enrolled in the direct loan program. If they are not, consolidate them into the direct loan program. If they are Stafford loans, you may want to see if you qualify for any of the Stafford forgiveness programs. Here is a complete guide to student loan forgiveness.
Will Trump lower my student loan payment?
You likely don’t need to wait for Trump student loan forgiveness reform to lower your payment. You may be able to lower your payment right now. Look at Income-Driven Repayment programs and/or private loan consolidations today. Based on President Trump’s statements so far, it is likely he will continue with some form of an income-driven repayment program that helps borrowers lower their monthly federal student loan payment to a manageable size.
Will Trump lower my student loan interest rate?
So far, Trump has not made any definitive statements regarding interest rates, but he has said the Department of Education shouldn’t profit from student loans. One way to make sure they are not profiting would be to lower the interest rate.
Will Trump do away with the Public Service Loan Forgiveness?
Trump has twice proposed legislation—the first failed and the second currently proposed—that would eliminate Public Service Loan Forgiveness. Early information shows that this wouldn’t necessarily affect borrowers currently enrolled in PSLF, but it would affect borrowers who begin taking out loans in 2020.
Trump’s end goal at the moment is to move all borrowers into a single Income-Driven Repayment Plan that offers complete loan forgiveness after 15 years of repayment. The program would replace all existing income-driven repayment plans and replace the Public Service Loan Forgiveness program. Borrowers who work in the public service would be eligible to have their loans forgiven after 15 years just like everyone else.
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1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
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Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
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