Each of the Democratic nominees for the presidential election have laid out their plans to address the student loan crisis in the United States. But our incumbent president has some ideas of his own. President Trump’s student loan plan was unveiled as a part of the recently-released White House 2021 budget.
While many of the Democratic candidates have introduced sweeping student loan forgiveness and free college for all plans, President Trump has taken a different approach. His proposed initiatives would actually result in a 7.8% decrease in the Department of Education’s budget.
Ultimately, President Trump’s student loan plan is all about simplifying programs and reducing bureaucracy. But are his suggested changes enough to satisfy student loan borrowers who are frustrated and disgruntled with the complicated student loan system? Let’s take a closer look.
President Trump’s Student Loan Plan: 6 Key Points
The full 2021 fiscal budget, along with all of Trump’s education initiatives is publicly available here. But if you don’t have time to comb through a 128-page document, here are 6 key actions the bill calls for.
1. Allow Faster Student Loan Forgiveness on Income-Driven Repayment (IDR) Plans.
Currently, there are four Income-Driven Repayment (IDR) plans. Depending on the plan that you join, you could be eligible for forgiveness in 20 to 25 years. Under President Trump’s student loan plan, borrowers would qualify for forgiveness after only 15 years of payments. This would increase the time to forgiveness for the typical borrower by 5 to 10 years.
2. Consolidate Income-Driven Repayment (IDR) Plans.
If you’ve had the pleasure of trying to join an Income-Driven Repayment (IDR) plan, you know that the program can be unnecessarily confusing. There are four different plans (PAYE, REPAYE, IBR, and ICR) and each have different requirements and features. Trump’s student loan plan consolidates these four IDR plans into one.
3. Set Income-Driven Repayment (IDR) Plan Payments at 12.5% of Discretionary Income.
So far, the changes that we’ve discussed should please the majority of borrowers. But this change is sure to have the opposite effect. Currently, the majority of student loan borrowers who took out student loans after July 1, 2014 are paying 10% of their discretionary income on their IDR plan. The only exception are Parent Plus borrowers who are on the ICR plan.
But if President Trump’s student loan changes take effect, IDR payments for everyone would be changed to 12.5% of their discretionary income. This would result in slightly higher monthly payments for most borrowers. As mentioned earlier, loans would also be forgiven sooner. But, in the meantime, a borrower’s monthly cash flow would suffer a bit under Trump’s proposed IDR plan.
4. Impose Annual and Lifetime Borrowing Limits on PLUS Loans.
This initiative is very important. Currently, PLUS loans are the only federal student loans that don’t have any borrowing limits. Only parents can take out PLUS loans to pay for undergraduate degrees. But graduate students can take out Grad PLUS loans on their own.
The government launched the “Grad PLUS loan” program in 2005. And, since then, graduate programs have known that students essentially have blank checks from the federal government. In response, new graduate programs have proliferated at an astounding rate. And, for many graduate degrees, tuition increases have far outpaced inflation.
Under President Trump’s plan, PLUS loans would become subject to annual and lifetime borrowing limits, just like subsidized and unsubsidized student loans already are.
5. Eliminate Subsidized Federal Student Loans.
This is another change that’s likely to ruffle a lot of feathers. Currently, there are two main types of federal student loans for undergraduate borrowers: subsidized and unsubsidized student loans.
The interest rate is the same on both types of loans. But the government pays the interest that accrues on subsidized loans while the student is enrolled in school. To qualify for subsidized student loans, students must demonstrate financial need. And that requires sending the Department of Education a lot of paperwork to prove that you have a low income and aren’t receiving a lot of financial support from family or friends.
President Trump wants to eliminate subsidized student loans altogether. In his mind, these loans require more government oversight and hassle than their worth. There may be some truth to that idea. But for students who qualify for subsidized student loans, eliminating the program will only serve to make college less affordable.
6. Eliminate Public Service Loan Forgiveness (PSLF).
And finally we have the biggie. Under President Trump’s student loan plan, the Public Service Loan Forgiveness (PSLF) program would be done away with.
Currently, PSLF is the fastest way (in theory) for borrowers who work in the public sector to earn student loan forgiveness. Under its current guidelines, government and non-profit workers can receive forgiveness in as little as 10 years (120 qualifying payments).
But to receive that forgiveness, you must remember to verify that you work for a qualifying employer each and every year. And the program has been marred by news reports of a staggering percentage of applicants being denied forgiveness for various reasons.
President Trump wants to eliminate PSLF and make forgiveness available to everyone at 15 years. His forgiveness plan would essentially “meet in the middle” between current IDR forgiveness and PSLF forgiveness. It would take public service workers 5 years longer to earn forgiveness with Trump’s plan. But everyone on IDR plans would get forgiveness 5 to 10 years sooner.
Note: The elimination of PSLF would only affect new borrowers. If you’ve already made qualifying payments towards PSLF, you’ll be grandfathered in.
How Does Trump’s Student Loan Plan Compare to Other Presidential Candidates?
President Trump’s plan stands in starkest contrast to the plans of Senators Elizabeth Warren and Bernie Sanders. Both Democratic nominees are advocating for massive student debt cancellation and free public college for everyone. There isn’t a whisper of either of these ideas in Trump’s student loan plan.
But his plan does bear some similarities to other Democratic nominees like Michael Bloomberg, Joe Biden, and Pete Buttigieg. Each of these candidates are also calling to consolidate the various IDR plans into one. But, unlike President Trump, most of them are calling for lower monthly payments while keeping forgiveness at 20 years.
Finally, President Trump stands alone in his call to eliminate Public Service Loan Forgiveness (PSLF). Even the candidates who aren’t stumping for student debt cancellation for all, have no plans to remove PSLF. Instead, most of the Democratic nominees promise to “fix” the program by simplifying it and speeding up the time to forgiveness.
