With the latest Congressional budget battle just ended, President Donald Trump just submitted his budget proposal for fiscal year 2019. The $4.4 trillion budget boosts spending on the military and infrastructure while cutting funding a number of programs, including Medicare.
Among the Trump budget cuts are those to education spending. The budget calls for huge changes to the way student loans are repaid — including streamlining the income-driven repayment (IDR) program and getting rid of Public Service Loan Forgiveness (PSLF).
However, some of the suggestions in the Trump budget proposal are what we’ve seen before, including changes to IDR and PSLF.
“There’s not a lot that’s new here,” said Adam Minsky, a student loan lawyer. “He’s made these proposals before. Right now, some of the issues raised in the Trump administration’s proposal are addressed in the PROSPER Act, a higher education bill going through Congress right now.”
What’s in the education portion of the Trump budget proposal?
The Trump budget cuts $3.8 billion to programs in the Department of Education, although there is an addendum to the budget, suggesting that $3.3 billion could be restored over the course of two years.
Department of Education Secretary Betsy DeVos praised the budget suggestions in a statement, saying that it “expands education freedom for America’s families while protecting our nation’s most vulnerable students.”
“The budget also reflects our commitment to spending taxpayer dollars wisely and efficiently by consolidating and eliminating duplicative and ineffective federal programs that are better handled at the state or local level,” DeVos said.
Here are some of the items addressed by the Trump budget.
When it comes to Trump student loans, the president has been promising to streamline the system since he was campaigning. The idea of reducing income-based repayment options down to one does streamline the system, and could potentially make it easier to navigate. Plus, the budget proposal calls for automatically enrolling some borrowers in IDR if it looks like they are falling behind.
“I’m all in favor of streamlining and even automatic enrollment for some borrowers,” said Minsky. “The idea of dropping down to one plan sounds good. It should eliminate a lot of headaches. Unfortunately, the devil is in the details once you dig deeper.”
Some of those details include changes to how long it takes to receive forgiveness. For undergraduate students, Trump’s plan calls for forgiveness after 15 years — a change from the current system that allows forgiveness after either 20 or 25 years.
Grad students wouldn’t fare so well, however. They would have to wait 30 years to see forgiveness of their loans under the Trump plan for student loans.
Finally, the Trump administration’s proposal would cap IDR payments at 12.5% of discretionary income. The current cap is 10%.
How does this compare to the PROSPER Act?
Like the Trump budget, the PROSPER Act also suggests getting rid of multiple federal loan repayment programs and replacing them.
However, in the PROSPER Act, loan principals are never forgiven. Instead, the interest is capped after 10 years of payment. But you still have to repay every penny you borrowed — no matter what.
Finally, instead of capping IDR payments at 12.5% of discretionary income, the PROSPER Act raises the monthly amount paid to 15% of monthly income.
End to PSLF
The administration’s budget proposal, like the PROSPER Act, puts an end to PSLF, a popular program that allows borrowers to have their loan balances forgiven after making 120 qualifying payments while working for nonprofit or government agencies.
While the budget proposal points out that getting rid of PSLF would save the government billions of dollars, it could have consequences for many low-income workers.
“Eliminating PSLF would be an acknowledgment that we will be burying those who work in the public and not-for-profit sector in even more debt,” said Justin Draeger, president of the National Association of Student Financial Aid Administrators (NASFAA). “There will be well-deserved, widespread backlash at the idea of taking away benefits away from our nation’s educators, firefighters, police officers, nurses, and social workers.”
Other Trump budget cuts to education programs
In addition to these drastic changes to repayment options, the Trump budget also cuts funding to several programs, including:
- Supporting Effective Instruction State Grants
- Federal Supplemental Educational Opportunity Grant
- 21st Century Community Learning Centers
- Student Support and Academic Enrichment Grants
- Comprehensive Literacy Development
- Teacher Quality Partnership
The Trump budget does call for expanding Pell grants so that they can be used for certificate and other short-term academic courses. Right now, Pell grants can’t be used for academic programs that are shorter than 15 weeks or that include fewer than 600 hours’ worth of instruction.
In the PROSPER Act, the suggestion is to provide a “bonus” of $300 to students who enroll in at least 15 credits per semester.
Will the Trump budget make it through Congress?
Any president’s budget proposal is a wishlist, said Minsky. Once it gets to Congress, it could see a number of changes. Additionally, legislators will have to determine which items will be taken care of in the PROSPER Act, rather than as part of a budget.
Draeger takes comfort in the idea that many of the Trump budget cuts might not make it through.
“Attempting to balance the budget on the backs of college students is profoundly short-sighted, if not downright destructive,” Draeger said. “We call on Congress to continue to adequately fund the student aid programs and move forward with thoughtful, deliberative, and reasonable proposals for student aid reform and investment.”
For now, Minsky suggests reading up on the situation and paying attention to pending legislation — and contacting your representatives. You can identify the members of the House and Senate from your district, and find out how to contact them, by using GovTrack.
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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 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% 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 Month/Day/Year, 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 08/21/18. 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 ourstudent loan refinance product.
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2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
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.
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 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
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