While on the campaign trail, then-candidate Donald Trump promised he would make policy decisions to reduce the burden of student loan debt.
But has the president made good on his promises so far? The recent fight over the just-passed tax reform package, current budget proposals from the Trump administration, and legislation just introduced into Congress all point to an uncertain future for student borrowers. For some students, the latest changes to the system could mean financial savings. Others, though, could find themselves losing money.
Let’s take a look at the recent developments and what’s on the table to sort out who is likely to benefit from Trump student loan policy — and who could find themselves floundering.
Close call: Tax reform
Just before the holiday recess, the House and the Senate passed their reconciliation tax-cut bill. Originally, versions of the bill included an end to the student loan tax deduction, as well as a provision in the legislation calling for taxing graduate student tuition waivers.
More than 12 million Americans take advantage of student loan interest deductions, according to 2015 IRS data (the most recent available). Additionally, about 145,000 graduate students would have been impacted by suddenly taxing the value of their tuition waivers, according to the American Council on Education.
However, in the wake of graduate student protests, 31 Republican lawmakers sent a letter to party leaders asking them to leave tuition waivers alone. “Repeal of the income exclusion for graduate students would subject thousands of graduate students to a major tax increase at a time in their lives when they lack the ability to pay,” the letter said.
Efforts to eliminate these measures in the final tax bill succeeded, although they could be back on the chopping block in the future.
“No matter what happens now, remember that many of the provisions benefiting the middle class are set to disappear within a decade,” said Adam Minsky, a student loan lawyer. “Plus, who knows what will happen next year or the year after that. They’re always tinkering with the tax code, even if legislation isn’t always this sweeping.”
Not everyone thinks this was a close call, though. Preston Cooper, a research analyst in education policy at the American Enterprise Institute, believes that the student loan interest deduction is outdated, thanks to income-driven repayment.
“[N]ow that federal student loan borrowers are guaranteed an affordable payment, no matter their income, the deduction has become redundant,” he wrote in an opinion piece in Forbes.
Income-driven repayment winners and losers
The current budget proposal from President Trump suggests some potential changes to the way we handle college debt. For example, student loans would be streamlined into a single income-driven repayment (IDR) track, simplifying the current system.
All borrowers would benefit from a simpler system, according to the budget proposal. “[T]he numerous IDR plans currently offered to borrowers overly complicate choosing and enrolling in the right plan,” the budget document says. A single plan would get rid of the stress of choosing among different options and would reduce confusion surrounding repayment terms.
On the one hand, Minsky said, this could benefit undergraduate students whose debt would be paid off after 15 years on an income-driven repayment plan, rather than having to wait 20 or 25 years under the current system. However, when it comes to making your monthly payments, things could be a little rougher.
“Where this drifts into loser territory for undergrads is the higher cap on income-based plans,” said Minsky. “Right now, they only have to pay up to 10 percent of their discretionary income. Under this proposal, that goes up to 12.5 percent. Depending on your financial situation, that could be devastating to monthly cash flow.”
The biggest losers with the new IDR approach would be graduate students. Their IDR repayment plan doesn’t offer student loan forgiveness until 30 years have passed.
“This change is ambiguous for undergraduate borrowers and unambiguously negative for graduate borrowers,” Cooper said in a separate analysis of the administration’s budget blueprint. “But since making loans to graduate students is expensive, the savings are immense — an estimated $76 billion over 10 years.”
Could Public Service Loan Forgiveness disappear?
A big feature of Trump’s plans for student loans involves getting rid of Public Service Loan Forgiveness (PSLF). And it’s not just the Trump administration — Congress has also been thinking of taking an ax to the PSLF program. It could disappear under the recently proposed PROSPER Act.
“Anybody who is working a public service job is a loser if Public Service Loan Forgiveness disappears,” said Minsky. “Society as a whole could also lose out with the end of this program because one of the incentives to do some of the most essential jobs, like teaching, would disappear.”
The PSLF program allows those who work in qualified public sector and non-profit jobs to have their loan balances forgiven after making 120 consecutive on-time payments. The president’s budget proposal, though, argues that the country as a whole would win, as getting rid of PSLF would “help put the nation on a more sustainable fiscal path.”
Minsky pointed out that defunding PSLF through a budget proposal isn’t really feasible. Since the program was created by an act of Congress in 2007, it would take an act of Congress to get rid of it.
That’s where the PROSPER Act would come in. Its update of higher education policies would get rid of prior repayment plans — including PSLF — and replace them with fewer options. If the Trump proposal on PSLF isn’t adopted in a budget bill, Congress may do it separately.
New borrowers could lose with Trump student loans
At first, it looks like new borrowers could win with a provision in the PROSPER Act that gets rid of origination fees for federal student loans.
However, the Trump budget proposal also suggests ending subsidized student loans. If such a measure is adopted, it could increase the cost of college for attendees who already face income-related struggles.
“Eliminating subsidized loans would increase the cost of college by thousands of dollars for many of the six million undergraduates who receive those loans each year,” according to the blog run by the Institute for College Access and Success (TICAS), a non-profit higher education advocacy group.
Using interest-rate projections from the nonpartisan Congressional Budget Office, TICAS estimates that, without subsidized loans, currently eligible students would end up paying 16 percent more due to accrued interest charges and add $23.4 billion in costs to students over the course of 10 years.
“The added costs to students would be even higher if interest rates increase faster than current projections,” according to the TICAS analysis.
Would for-profit colleges be the big winners?
When looking at winners and losers from Trump student loan proposals, Minsky suggested looking beyond the White House budget and legislative pushes from Congress. “Don’t forget about what the Trump administration has been doing through the Department of Education with Secretary Betsy DeVos at the helm,” he said.
Since the beginning of her tenure, DeVos has rolled back rules designed to protect students from loan servicers. Additionally, critics have slammed the Department of Education for hiring former executives at student loan companies and for continuing to throw up “roadblocks” for defrauded students looking for debt relief after being misled by now-defunct colleges.
Some observers also see the PROSPER Act as a big win on behalf of for-profit colleges. “Where students are the losers under this proposal, the clear winners are for-profit colleges,” TICAS vice president Debbie Cochrane said in a statement.
One of the biggest targets of the PROSPER Act is what is known as the “90-10 rule.” This bars for-profit colleges from receiving more than 90 percent of their total revenue from student aid programs, while at least 10 percent must come from other sources.
Additionally, it ends the “gainful employment” rule, which punishes schools where typical graduates can’t afford their student loan payments. The idea is to discourage expensive schools from benefiting from useless programs that don’t lead to jobs with decent compensation.
The elimination of these rules isn’t seen as negative by everyone. “This proposal offers important reforms that emphasize good jobs and quality careers for our nation’s students,” Steve Gunderson, the president and CEO of Career Education Colleges and Universities (CECU), a trade group representing for-profit colleges, said in a statement.
Gunderson said these changes would provide his member campuses with the ability to outfit the workforce of the future.
However, Ted Mitchell, the president of the advocacy non-profit American Council on Education, released a statement taking issue with some parts of the PROSPER Act. While Mitchell expressed an interest in efforts to streamline student loan repayment processes, he also offered a warning.
“[W]e are deeply concerned that the proposal would undermine decades of federal policy aimed at helping students at the undergraduate and graduate levels afford a high-quality higher education,” he said. He cited the hike to interest charges on student loans and the elimination of “1.5 million financial aid grants” among his worries about the bill.
What can you do about your student loans?
No matter what happens in the future, said Minsky, your current loan program and repayment terms are likely to be grandfathered in. However, it’s important to be knowledgeable about your options, especially if rules governing servicers offer less protection to borrowers in the future.
For example, you should understand how student loan consolidation works, and learn your options with income-driven repayment. If you are concerned about private loans and escalating interest rates, consider refinancing your student loans.
And, of course, follow what’s happening with the current administration and in Congress. Changes to the system, whether they come from tax bills or legislation like the PROSPER Act, can impact your educational and financial future. Pay attention and contact your elected representatives to let them know your feelings on legislation.
“What we need is true higher education reform,” said Minsky. “Right now there’s a false divide between borrowers and taxpayers. But borrowers are already taxpayers, and you’re asking them to pay more while whittling down the flawed protection they have.”
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