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Changes to Student Loan Forgiveness Trump Proposed: Here’s How it Impacts You

On August 8, 2020, President Trump signed an executive order to suspend federal student loan interest and payments until December 31, 2020. He mentioned an additional extension is likely, and that he would decide on December 1 if that extension would last longer than the end of 2020. These suspended payments will likely count towards 20 to 25 year forgiveness programs but not PSLF. That said, we expect Congressional legislation at some point to grant retroactive credit to any borrowers who accepted the economic hardship deferment offered under the student loan order. If you're looking for information related to student loan relief during the COVID-19 pandemic, please see our post on the Trump student loan interest waiver here.

The race for the 2020 election is heating up. And Vice President Biden has unveiled a bold student loan forgiveness plan. But President Donald Trump has made a few student loan forgiveness changes himself. And he has several more proposals on the table.

Trump’s student loan forgiveness changes began with the passing of the Tax Cuts and Jobs Act in December 2017. But Trump’s 2020 budget and 2021 budget proposes even bigger changes — including the consolidation of income-driven repayment plans and the elimination of Public Service Loan Forgiveness.

Along with Trump's plan to increase IDR payments to 12.5% of income instead of 10% and require borrowers with graduate degrees to pay for 30 years instead of 20, borrowers overall would pay billions of dollars more under Trump's student loan plan.

This guide covers all the changes to student loan forgiveness Trump has already made, potential changes in 2020 and how they compare to other leading proposals.

Collectively, we find that student loan changes that Trump favors could cost borrowers at least a quarter of a trillion dollars over 10 years.

Changes to student loan forgiveness under Trump

The Trump administration passed its Tax Cuts and Jobs Act in 2017, which included two student loan-related changes.

Total Death and Disability Discharge no longer taxable

When borrowers with federal student loans are permanently disabled, they can receive student loan forgiveness through the Total and Permanent Disability Discharge (TPD) program.

Previously, forgiveness through this program was treated as taxable income. But the Tax Cuts and Jobs Act changed that.

This is good news for disabled borrowers. Imagine that you received $50,000 of forgiveness through TPD. Even if you were only in the 12% tax bracket, that would generate at least a $6,000 tax bill.

Coughing up a chunk of change that large would be tough at any time, but especially when you aren’t able to work. This simply wasn’t fair, and it’s great that the rule has been changed.

It’s important to note, though, that the law isn’t retroactive. Only loans forgiven on or after Jan. 1, 2018, qualify.

Tuition and Fees Deduction no longer available

The Tax Cuts and Jobs Act eliminated the Tuition and Fees Deduction. Before it expired, you could use this deduction for certain school expenses. Enrollment fees, tuition, course books and lab fees were examples of qualifying expenses.

It’s a bit of a bummer that this deduction is no longer available. But several other popular student loan tax programs remain unchanged. The American opportunity tax credit, Lifetime Learning Credit and student loan interest tax deduction (for now) are still available under the current tax code.

Trump’s 2020 student loan proposals

Trump has much bigger student loan changes in mind. If his 2020 budget was approved the way he proposed, it would have had drastic effects on the student loan landscape.

Here are a few of the notable student loan proposals included in the White House 2020 budget that weren't ultimately adopted.

Create one consolidated income-driven repayment plan

Currently, there are four income-driven repayment (IDR) plans. Depending on the plan, you can receive student loan forgiveness after 20 to 25 years of payments.

Trump’s plan was to consolidate all the plans into one. The rationale was that this would minimize confusion and make IDR easier to manage for the Department of Education.

Increase IDR monthly payments

With current IDR plans, your payment will typically be 10% of your discretionary income.

Trump’s proposal was to increase monthly payments to 12.5% of a borrower’s discretionary income.

The CBO estimates that the current student loan subsidy for IDR plans is 43% using a fair-value approach. It also estimates the expected federal student loan issuance over the next 10 years will be about $1.05 trillion.

I compared the present value of different cash flow estimates with a higher required payment.

My estimate is that the subsidy on IDR plans under a plan requiring 12.5% of income would be 28% using a fair-market value approach. That's in contrast to the higher subsidy rate of 43%, according to the CBO.

53% of borrowers with Direct Loans are on an income driven plan as of March 2020, according to the Department of Education.

That means the Trump student loan plan would've increase costs to borrowers by:

(Subsidy difference of 0.43 – 0.28) * ($1.05 trillion expected student loan issuance over 10 years) * (53% share of borrowers on IDR plans)

= $83 billion over 10 years.

Make IDR student loan forgiveness sooner for undergraduate loans

Along with the consolidation of the four IDR plans into one, the student loan forgiveness Trump proposed would've happened sooner for undergraduate borrowers.

Undergrads would be eligible to receive student loan forgiveness after 15 years. This would speed up forgiveness by five years from current IDR plans.

Make IDR student loan forgiveness later for graduate loans

While undergrad loan forgiveness would speed up under Trump’s plan, grad loan forgiveness would've taken longer.

Under Trump’s plan, graduate borrowers would've needed to make 30 years of payments before qualifying for forgiveness. That’s five years longer than current IDR plans for graduate loans.

There are more undergraduate borrowers compared with graduate borrowers. It's unclear exactly what the effect would've been on overall cost of changing the length of IDR forgiveness, but it would likely have cost borrowers money overall.

Eliminate Public Service Loan Forgiveness

In what was probably Trump’s most controversial proposal, he wanted to do away with the Public Service Loan Forgiveness (PSLF) program. The Trump administration argued that PSLF is a mess and gives unfair preferential treatment to public service workers. It said offering 15-year forgiveness to all federal student loan borrowers is a better plan.

In cutting this type of student loan forgiveness, a ton of overhead would potentially be eliminated, as the Department of Education would no longer have to deal with the headache of verifying employment data from PSLF applicants for 10 years.

This repeal would not have affected borrowers currently eligible for Public Service Loan Forgiveness. The PSLF program is explicitly listed as an option in your promissory note if you are an existing borrower. President Trump's plan would affect borrowers who have not yet taken out student loans.

You cannot qualify for PSLF unless you work 10 years at a qualifying not-for-profit or government employer while making income driven payments.

Approximately 25% of the work force works at a qualifying employer and 53% of borrowers pay their loans on an income driven plan.

By repealing PSLF, future borrowers could lose as much as (25% of workers eligible) * (53% share on an IDR plan ) * ($1.05 trillion in student loan issuance in the next 10 years) =

$139 billion over 10 years.

What Trump’s opponents say

Opponents to the change (and there are many) say that PSLF is needed. They believe the program encourages qualified workers to choose public service professions. Trump is going to have a fight on his hands when it comes to eliminating PSLF. He’s tried before and failed.

Even if he’s able to get this proposal passed into law, it would only apply to future student loans. If you’ve already been accepted into the PSLF program and have been making qualifying payments, you should be able to finish the program.

Related: What to Do If You’re Worried About Trump Repealing PSLF

Eliminate subsidized student loans

Currently, some federal student loans don’t accrue interest while borrowers are still in school. To qualify for these subsidized federal student loans, borrowers must demonstrate financial need.

If your family income is too high, you can take out an unsubsidized federal student loan. But Trump wants to do away with subsidized student loans altogether.

According to the nonpartisan Congressional Budget Office, Stafford Subsidized loans have a 10.7 percent subsidy rate. Out of $254 billion in issuance over 10 years, this would cost borrowers $27 billion over 10 years.

Again, this is sure to be an unpopular proposal. It also will have a hard time passing both houses of Congress.

Get Started With Our New IDR Calculator

How the Trump student loan forgiveness plan compare to others

As mentioned earlier, Trump isn’t the only one proposing student loan reform. Here are a few more plans being tossed around in Washington.

What You Can Do For Your Country Act

While Trump is angling to eliminate PSLF, Sens. Tim Kaine, D-Va., and Kirsten Gillibrand, D-N.Y., as well as other Democratic senators, are looking to improve the program.

Here are a few key highlights from the What You Can Do For Your Country Act that was proposed in April 2019.

  • Forgive 50% of student loan balance at five years: This would be a huge change, as currently it takes 10 years to earn PSLF forgiveness. With this plan, borrowers could have half of their balance forgiven at the five-year mark.
  • Count “pay ahead” payments toward PSLF: This would keep you from being penalized for trying to do the right thing and paying more than you have to.
  • Count all types of federal student loan: It’s unclear exactly what this would mean. But Democrats want Federal Family Education Loan (FFEL) Program Loans to qualify for PSLF.
  • Eliminate the need for income certification: With this plan, every payment would qualify for PSLF. Therefore, there would be no need to annually certify your income.
  • Allow self-certification of public service employment: If your employer refused to sign your certification form, you could certify your employment yourself.
  • Make “30 hours a week” the clear definition of full-time employment: Currently, “full-time employment” is considered to be 30 hours or whatever your employer considers full-time. With this change, your employer’s definition would no longer matter.

How does Kaine and Gillibrand’s proposal compare to Trump’s?

On one hand, it recognizes the need to simplify the program. But it also demonstrates that the Democrats believe PSLF is worth preserving.

In many ways, it’s a fairly balanced and well-thought-out proposal. But it’s unlikely to pass unless a Democrat wins the White House in 2020.

Student Borrower Bankruptcy Relief Act of 2019

The Student Borrower Bankruptcy Relief Act of 2019 was introduced by Sen. Richard Durbin, D-Ill., on May 9, 2019.

If passed, this piece of legislation would make it possible for student loans to be discharged in bankruptcy.

While that’s technically possible today, borrowers must prove “undue hardship” to a judge. Opponents to this current rule say that it’s incredibly subjective. They also find it strange that student debt is treated differently than all other debt in bankruptcy.

Lawmakers and advocacy groups have been calling for student loan bankruptcy reform for quite some time. But so far, Trump’s team has remained relatively mum on the issue.

Elizabeth Warren’s student loan forgiveness plan

Sen. Elizabeth Warren, D-Mass., one of the Democratic presidential candidates, has been very vocal about the student loan problem in America. And she’s presented a bold plan to give borrowers relief.

With Elizabeth Warren’s plan, the government would forgive up to $50,000 of student debt per individual. The exact amount forgiven would depend on the borrower’s income.

Warren says her plan would erase all student debt for 75% of borrowers and would provide at least some relief for 95% of borrowers.

Borrowers with an income of under $100,000 would receive the full $50,000. After that, borrowers would receive less. Her plan caps out completely for borrowers who make $250,000 or more.

She also plans to pass a universal free college program, which would make all two-year and four-year public colleges tuition-free.

Bernie Sanders student loan forgiveness plan

If you thought Elizabeth Warren’s student loan forgiveness plan was extreme, wait until you hear what Sen. Bernie Sanders, D-Vt., has in mind.

In short, he wants to forgive all $1.6 trillion of United States student debt in one fell swoop. Yes, that includes private student loans.

To pay for his plan, Sanders would institute a Wall Street tax. All stock, bond and derivative trades would be charged a small tax under Sanders’ plan.

Like Warren, Sanders also wants to make college more affordable. His College for All proposal calls for all four-year public universities, tribal colleges, community colleges, trade schools and apprenticeship programs to be free for families earning less than $125,000 a year.

The bottom line

The total projected cost to borrowers if President Trump's student loan plans had become law would've been at least $249 billion, as projected above.

In order for any legislation to become law, the proposal must pass both the House and the Senate. And in our polarized political environment, far-left or far-right bills have a difficult time making it through.

Trump, the Democratic presidential candidates and other politicians all have their own ideas for how to fix the student loan mess. If one party is able to win the presidency, the House and the Senate in 2020, it may be able to push its bolder ideas through.

Otherwise, it’s going to take both sides working together (and making compromises) for progress to happen.

What do you think of President Trump's budget and efforts to repeal Public Service Loan Forgiveness this year? Let us know in the comments.

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Comments

  1. A. Sanchez August 22, 2019 at 11:22 PM
    Reply

    I’m curious how likely do you foresee some of Trump’s plan passing as to me it seems unlikely that he would win the Senate and the House? I’ve read how Warren plans to pay for her plan, has Trump mentioned how he plans to pay to eliminate the Public Service Loan program to grant ALL federal loan recepients forgiveness in 15 years? Maybe I’m missing something but the proposal to get rid of subsidized loans seems to just be passing the buck along? The loans given to lower income families will incur interest while the students are in school however in 15 years that interest will be eliminated as well when forgiveness is granted?

    • Travis Hornsby August 26, 2019 at 6:46 PM
      Reply

      The Senate Republican proposal doesn’t look a lot like Trump’s, so we’d have to wait and see what happens post 2020 to get clarity. That said the Republicans had control in 2016 to 2018 and didn’t do anything bc of other larger priorities.

    • Mo August 4, 2020 at 9:19 AM
      Reply

      When and how does the 15 year forgiveness kick in ? Is it just for future loans?

    • Nichole September 15, 2020 at 7:11 PM
      Reply

      The offset would come from the money it’s costing the US government to pay off the public service repayment loans in 120 months, 10 years. Instead, those borrowers would be paying their loan for 15 years like everyone else. Then couple that with the 10 to 12.5 increase for the IDR borrowers, and the increased forgiveness time for grad loans (which have higher interest rates), and you have a balanced program where we don’t have to cut in to or take away from other necessary public programs. Trump has basically reconfigured the where the money goes within the student loan department and changed how the money is paid back to make it more efficient and effective for both the US government, tax payers, and the borrowers.

      For example, those who are on an IDR plan, I would be all over the increase to 12.5 percent. The increase in monthly payments would be minuscule unless they are making way too much money to be in one of those payment programs to begin with. The interest rates don’t change. So the extra money would go toward principal causing less interest to accrue over the life of the loan. Then couple it with a 15 year forgiveness. The payoff (Forgiven amount) would be significantly less while the extra 2.5 percent would increase the payments by a small amount, like 50 dollars per month, but they would pay for 60 months less in time. It’s really not that much of an increase when looking at the whole picture and the number above number seems heavily exaggerated and would only happen if the years paid before forgiveness remained at 20 years or increased.

  2. Brenda October 26, 2019 at 6:18 AM
    Reply

    I co signed Student loans for a young man who was like a son to us ! Right after graduation from College he landed a dream job as a Computer Engineer ! Right after he started his job he wasn’t feeling well and found out he had Cancer ! He fought his battle for 6 years and sadly lost his battle ! Since I Co Signed his Loans I am now liable to pay them back ! $30.000.00 worth ! No where in the paper work did Sallie Mae State that in the event of death the Co Signer would be liable ! Please change the law that releases a Co Signer in the event of the Students death !

    • Travis Hornsby October 30, 2019 at 12:56 PM
      Reply

      Brenda according to Sallie Mae’s website you can apply to have the loan forgiven now. https://www.salliemae.com/student-loans/get-ready-to-borrow/consider-a-cosigner/cosigner-responsibilities/

      What if the student dies or becomes disabled?

      If a student dies or becomes permanently and totally disabled, we’ll waive all remaining payments on their Sallie Mae student loan. Call us at 800-472-5543.

    • Mireya February 11, 2020 at 8:25 PM
      Reply

      I agree. That is horrible what happened to that young man and that you have to repay it after his death. Sallie Mae has made enough money that they can stop going after the money of deceased student’s debts. This country needs to start putting its citizens first and not these corporations and the 10% at the top. If the government won’t do it and protect us, we need to make them and protect each other. I’m so sorry Brenda this happened to you and you lost your loved on. Thank you for being such a good person and being there for him when he was in need.

  3. Linsey February 12, 2020 at 12:31 AM
    Reply

    Complicated question: I am currently in grad school with six figures in student loans. I am planning to graduate within the next two semesters, then consolidate at the end of my grace period since I have a few FFEL loans. I am in pursuit of a PSLF-eligible job, and assuming I get it, will sign up for an IBR plan and start paying my 120 payments.

    If PSLF is altered/eliminated by that time, will the consolidated total count as a NEW loan that won’t be eligible for PSLF? Or does my status as an “old borrower” protect my access to PSLF?

    • Travis at Student Loan Planner February 13, 2020 at 4:41 PM
      Reply

      You’ll be safe til the fall of 2021 then I’m not sure.

      • DD February 19, 2020 at 10:36 PM
        Reply

        I see where this Fed loan program has been an unmitigated disaster. If these loans are forgiven and I believe they will be as this is on table….will create the biggest tax cut and economic boost this country has ever seen since WWII.
        I think conservatively, but again this has only hurt students in long run.
        We bailed out these banks and other companies to the tune of over a trillion dollars…..We need to help the burden of these loans on students.
        What the world of politics doesn’t realize is that the silent majority is not a the farmer couple any more it is 50 million people with massive student loan debt, where 50% are not in repayment and neary 25% are in default.
        Whichever candidate appeals to these people will win the election. I believe that Bernie can win based on this alone. I will vote for him, I dont want to, but I have to.
        Knowing Trumps use of finance and bankruptcies for business, and yes folks many of these billionaires have danced with bankruptcy I am surprised he is not proposing this as it would gather those that need this type of help…..The money was just printed with the push of a button anyway.

  4. Sophie February 12, 2020 at 10:13 AM
    Reply

    I am so frustrated with this talk about student loan forgiveness. I worked three jobs to pay my way through school, took out student loans, and then worked two jobs for 10 years after Graduation until I paid them off. I am unsure why the government should be in the business of personal loan forgiveness when they should be focusing on the debt we owe to China! Let’s get the government out of debt first then, we can talk about forgiving personal loans of our citizens.

    • Landry February 17, 2020 at 4:22 AM
      Reply

      That’s great. But the cost of education has increased EXPONENTIALLY and wages have not. Many of us will work multiple jobs for the next thirty years and never be able to pay off our loans. Your situation is not necessarily representative of everyone else’s.

    • Janelle February 17, 2020 at 4:30 AM
      Reply

      Bright idea here—maybe also don’t give tax breaks to billionaires if we want to pay off that debt? Poor students paying back loans are hardly where the money’s at…

      • DD February 19, 2020 at 10:39 PM
        Reply

        Janelle,
        I am convinced it is meant to imprison these students….if you have 50-70 million people paying the FEd govt the rest of their lives. YOU have quite the income stream. It must end now

    • DD February 19, 2020 at 10:48 PM
      Reply

      Sophie,
      And you should be able to get a tax break on what you paid. If our country could reduce budget just 10%…this could be done. WHy do we give money to Ukraine or Greece or Ecuador etc etc etc. Look at the F35 the Trillion dollar jet plane that does not fly!!! OVER a TRILLION now-this plane is under powered, cant shoot and has constant glitches after 6 years (In both 2017 and 2018, only about half of the United States’ F-35 fleet was available to fly at a given time, with the rest down for maintenance.Credit…Anne Rearick for The New York Times). US Budget is 4 Trillion dollars. We could make the loan forgiveness up in 5-10 years.
      New taxes generated from freed up payments would increase even more than what was forgiven….The time has come!

  5. Lee parent July 4, 2020 at 5:08 AM
    Reply

    Hello,

    I have student loans I worked as a fire fighter for 7 years became permanently disabled as a fire fighter and was receiving social security benefits. I went back to school and I am currently working in a large city as a school nurse. My question is I can’t afford my IDR plan because it is several hundred dollars higher the then extended graduated plan that I am currently paying is there any way I can benefit from student loan forgiveness under public service forgiveness or the teachers forgiveness plan? I find it frustrating that IDR plans are higher in some cases then other repayment plans and they are the only plans listed to receive some relief.

    • Amy at Student Loan Planner July 7, 2020 at 1:03 PM
      Reply

      It’s certainly possible. I’d suggest you meet with one of our student loan consultants to review your situation and find out exactly what the best path forward would be. You can find out more here: https://www.studentloanplanner.com/hire

  6. Kathleen Krueger August 26, 2020 at 2:27 PM
    Reply

    You went to the restaurant. The menu displayed the prices; you knew what it would cost. You ordered the steak. You ate the steak. Now the check has been presented to you. You have to pay the check. If it means getting 2 jobs, you do whatever it takes so that taxpayers (like me) don’t get stuck with the payments. My social security check only goes so far. I paid my own way through a junior college, you can too.

    • Sarah Fisher August 31, 2020 at 12:47 PM
      Reply

      Except Junior college degrees are not as credible as a 4 year university…. I went to a junior college for my first 2 years and finished off at a major university. I also paid my way and worked as a server but still had to borrow because of the extremely expensive tuition fees. Using a restaurant as an example makes no sense because you can choose a cheaper menu item or restaurant but you cant choose a cheaper college when they are ALL expensive no matter how you do it. One may be a few thousand dollars cheaper but at the end of the day they ALL cost tens of thousands of dollars.

  7. Alexandra September 5, 2020 at 12:28 PM
    Reply

    Hi,

    I have a question for you about the proposed Trump/Biden IDR changes. I know a Master Promissory Note grants borrowers the right to IDR programs in place at the time of their loan underwriting. Does this mean that old borrowers could maintain a 10% discretionary payments under PAYE or RePAYE, and avoid the increase proposal of 12.5% from President Trump?
    Alternatively, if Biden is elected and cuts IDRs to 5% of discretionary income, could old borrowers opt to forgo their previous payments to enroll in the new and reduced rates? I realize this is kind of gaming the system, but it’d be great to have some flexibility!
    Thank you! I hope my question made sense!

    • Amy at Student Loan Planner September 9, 2020 at 7:03 PM
      Reply

      It’s unlikely the old repayment options would go away for current borrowers, so that’s our outlook right now. It’s a “wait and see” sort of thing, though, because it could take a while to get new options implemented.

  8. Nichole September 15, 2020 at 6:20 PM
    Reply

    I’m all for getting rid of the public service forgiveness. All it does is cost our country more money. I’m also for consolidating the income driven repayment plans and increasing from 10 to 12.5 percent. I’m not sure how they are figuring it would cost borrowers more money to do that when essentially over the life of the loan they would end up paying higher principal and less interest would accrue over time. It wouldn’t even increase payments that much per month. For me it would be maybe 50 dollars per month, if that, and the interest rate doesn’t change, so the extra would be going towards principal and less interest would accrue overtime, making my total payoff significantly less. That’s basic finance. I’m not for warrens payoff of up to 50K. where is she planning to get the money to do that? What other necessary programs will they cut to offset that? These are loans and they have to be paid off by someone whether it’s the borrower or the government. They don’t just disappear. I owe a lot, a lot, much higher than average in student loan debt, but I signed a contract and promise to pay when I got these loans and am completely fine with paying them off.

  9. Ken September 23, 2020 at 3:58 PM
    Reply

    Hello,
    I am currently enrolled in nursing school and have acquired both federal and deferred payments for my private loans close to $78k and just added another $10k for my last year. The private loan has already generated $5k in interest, will the new bill help me in any way? Does Trump’s 0% interest until 2021 on student loans help us and should I make some payments from my savings now to at least pay down the interest? Please help, any advice is appreciated. Thank you

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