Student Loan News: White House Proposes Slashing Federal Student Aid Programs

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Welcome to Student Loan News, a weekly summary of developments and events affecting college debt in the U.S. Join us each Friday for a look at goings-on that could impact your own student loan situation.

Administration’s budget would eliminate PSLF, subsidized loans

The White House released its fiscal 2021 budget proposal Monday, calling for an end to the popular Public Service Loan Forgiveness Program and all but one of the income-driven repayment (IDR) plans.

The president’s pitch — though highly unlikely to gain traction in Congress (see below) — would also:

  • Increase the minimum monthly payment under that single IDR plan, from 10% of a borrower’s discretionary income to 12.5%
  • Get rid of subsidized loans, which are interest-free for lower-income students during the time they’re enrolled or in deferment
  • Reduce funding for work-study programs
  • Set borrowing limits on graduate and professional students, as well as parents borrowing on behalf of undergraduates
  • Expand eligibility for Pell Grants but freeze maximum the award amount
  • Do away with the Federal Supplemental Educational Opportunity Grant

Without spelling them out in detail, the budget also proposed some borrower-friendly initiatives, including eliminating default for “impoverished” borrowers and providing “expedited loan forgiveness” for undergraduate borrowers who make 15 years of payments.

The New York Times reported that these policies would trim government spending by $170 billion, shrinking the Education Department’s expenses by 7.8%. However, the Center for American Progress predicted the moves would worsen the country’s student loan debt, not alleviate it.

Seeking the end of PSLF could garner the most attention. The program currently promises to deliver loan forgiveness to borrowers who have made 10 years of timely payments while working in a public or non-profit job. The Trump Administration first asked for its elimination in its 2018 budget.

How it affects YOU: As noted above, Congress is unlikely to pass this package of measures — modern presidential budgets are usually just meant to spell out White House priorities. Instead, the Congress creates its own spending bills that may or may not incorporate some aspects of the president’s proposals.

In fact, The Hill reported in January that the House of Representatives — where all budget resolutions start — appeared unlikely to pass a budget at all in 2020.

So even if some of the White House’s stances concern you, know that that such major changes to Federal Student Aid are unlikely to take place until after the next election, if at all.

Also in the news…

  • A new report from the nonpartisan Congressional Budget Office (CBO) projected that graduate and professional students would receive $167.1 billion of the $207.4 billion expected to be awarded via IDR forgiveness over the next decade.
  • Natural Light announced Tuesday it would continue with its 10-year, $10 million pledge to help student loan borrowers. In 2020, the beer company plans to dole out $1 million in aid — including an offer of $100 awards to anyone willing to “rent out” their college diploma to the company.
  • Reset Button, a company which launched on Wednesday, will aim to connect lawyers with borrowers who are considering a student loan discharge via bankruptcy. According to founder and law professor Jason Iuliano’s research, 99.9% of borrowers who file for bankruptcy don’t include their education debt in the case.
  • An activist organization known as The Debt Collective launched a national debt strike last Friday. More than 480 people signed on to the protest this week, pledging to put off their loan payments for good. (Note: Before you consider such a move, weigh the risks.)
  • An Illinois state senator introduced a bill on Monday urging Congress to add farmers to the list of professions eligible for PSLF, according to the State-Journal Register. As we’ve reported previously, a bipartisan bill in the House is already seeking to do this.

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