President Donald Trump is in the news again, but the reason might surprise you. The Brookings Institution, a research group based in Washington, D.C., released a study that found Trump’s student loan plan could help thousands of undergraduate students save money.
Thanks to the proposal’s expansion of student loan forgiveness, undergraduate students could save thousands of dollars. Not everyone would benefit, though; the proposal would shift the burden onto graduate students.
Here’s what you need to know about the study’s findings and how the proposal could affect you.
What’s in Trump’s student loan plan?
President Trump’s plan proposes serious changes to the current federal student loan program. Here are four of the biggest shifts:
- Ending Public Service Loan Forgiveness (PSLF): Trump’s proposal would end the PSLF program for new borrowers. Current borrowers would still be eligible for forgiveness. But students who take out federal loans on or after July 1, 2018, would no longer qualify for forgiveness after 10 years.
- Eliminating Subsidized Stafford Loans: Trump would stop Subsidized Stafford Loans, which are federal loans for low-income students with lower interest rates. All borrowers would have the same loan options and interest rates.
- Expanding Pell Grants: Under the current structure, Pell Grant recipients can’t use the grants for summer classes or remedial courses. Trump’s plan would expand Pell Grants so students could use them for those courses. That’s a change many Democratic politicians agree is a good idea.
- Changing some income-driven repayment (IDR) plans: Trump would change some IDR plans for students. Undergraduates would have to pay 12.5 percent of their discretionary income instead of 10 percent, but the government would forgive their loans after 15 years rather than 20. Graduate students, on the other hand, would have to make 30 years of payments before the government would discharge their loans.
Democrats likely will fight some parts of the plan, such as the change to Stafford Loans, but other areas might get bipartisan support.
Brookings Institution study results
The Brookings Institution used hypothetical scenarios to figure out how much borrowers would pay with the proposed changes compared to the current system.
Overall, the researchers found that borrowers would see an increase in benefits and could save money. That perk is especially true for undergraduates who have above-average debt.
For example, if an undergraduate student had $15,000 in loans and a starting income of $20,000, their monthly payment under today’s income-based repayment plan would be $16 — 10 percent of their discretionary income. After 15 years of making payments, the student would pay back $15,602.
Under Trump’s proposal, the borrower would pay 12.5 percent of their discretionary income — or $20 a month. But they’d get forgiveness five years sooner and pay back just $10,954. The change would save them more than $4,500. A person with more debt and a higher income would save even more.
However, graduate students would see a decrease in IDR plan benefits. Like undergraduate students, they’d pay more of their discretionary income toward their loans. Additionally, they’d make payments for 15 years longer than undergrads and end up paying more than they would under the current system.
Under today’s plan, if a graduate student borrowed $50,000 in student loans and made $40,000 per year, they’d pay back $75,152 over 20 years of payments. The government would forgive $32,011. Under Trump’s plan, that same student would pay more than $100,000 and pay back their loans in full in 23 years without any loan forgiveness.
The justification for this change is the fact that people with a graduate degree tend to make more money than people with only an undergraduate degree.
What this plan means for you
If you’re an undergraduate student, Trump’s student loan plan might sound like a great deal. For graduate students, the proposal might be frightening.
In either case, it’s important to remember that Congress hasn’t voted on this plan yet. Only some of President Trump’s changes might make it through — or none at all.
These changes aren’t likely to happen anytime soon. However, you can help advocate for or against Trump’s student loan plan by contacting your congressmen or congresswomen and letting them know your thoughts. If you don’t know where to start, Congress.gov has a comprehensive list of all members of Congress.
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1 Important Disclosures for 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 will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.50% APR (with Auto Pay) to 7.82% APR (with Auto Pay). Variable rate loan rates range from 2.43% APR (with Auto Pay) to 7.21% APR (with Auto Pay). 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 10 years or less. For loan terms of 10 years 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 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.
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2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.45% effective May 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.43% – 7.21%1||Undergrad & Graduate|
|2.43% – 6.65%2||Undergrad & Graduate|
|2.43% – 6.59%3||Undergrad & Graduate|
|2.44% – 6.87%4||Undergrad & Graduate|
|2.46% – 7.08%5||Undergrad & Graduate|
|2.93% – 9.67%6||Undergrad & Graduate|