Trump Student Loans Forgiveness

The proposed budget for 2020 was announced by Donald Trump in March of 2019. So, I can make you familiar with how Trump student loans plan looks like. Before moving to its brass tacks, bear in mind that it may not look attractive. The programs is planning: 

  • To entirely cancel subsidized student loans
  • To entirely cancel the PSLF program
  • To end the current Income-driven plan for paying back student loans. They include income-based plan, REPAYE plan, PAYE plan, and income-contingent plan. That said, he wants to create a new Income-driven payback plan.
  • To immediate enroll borrowers who have been very negligible with paying back to the newly established Income-driven plan
  • To decrease the number of improper payments of Pell Grant, yet allowing Pell Grant to support short-term study programs, too
  • To cancel the standard payback cap. For loan payments of married couples, usage of adjusted gross earnings will be implemented. Still, they will be filed in a separate way
  • Presenting “risk-sharing” to post-secondary schools which obtain federal loan financing

Is Trump Student Loans Plan Good or Bad for You?

Well, the answer to this question heavily hinges on your specific case. Trump student loan changes can benefit one and drive another into a worse situation. And I will anyway discuss all the nitty-gritty of it below, so you will have a better understanding. But before that, you should bear two nuances in mind. The first is that the President cannot force his changes to be applied right away. Before these changes reflect themselves in the law, both the Democrat-controlled House and Republican-controlled senate should agree to them. And certainly, there is going to be a compromise before the changes pass through the law. 

On top of that, in case these modifications are applied to the law, you are unlikely to be affected by them. In other words, these changes will impact those who take loans after 2020. It means, the people who are already in the repayment phase will continue their payback plans the way they are. 

Now I will move to discuss each tenet of Trump’s proposal in a more detailed way.

Cancellation of Subsidized Federal Loans of Students

One of the initial nuances in the Trump student loans changes plan is the cancellation of subsidized federal loans. An example of such a loan is Stafford loan. 

If you do not know, keep in mind that subsidized loans are the loans on which no interest is accrued due to the financial difficulty when the borrower is in the period of deferment, forbearance, or still in school. 

Subsidized federal loans typically cost much less than other loans. As a result, the Federal Government receives almost no revenue from them. 

As per me, this change is not that bad. The existence of both subsidized and unsubsidized loans makes it more confusing for students. So the cancellation of it can clear up the situation a little. On the other hand, the main reason for the suffering of students is interest. People pay for ten even 15 years for the accrued interest. Still, they do not reach a point close to finishing to pay off their debt. So, from this viewpoint, the proposed change plan of President Trump does not look likely to benefit students. 

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Cancellation of Subsidized Federal Loans of Students

One of the initial nuances in the Trump student loans changes plan is the cancellation of subsidized federal loans. An example of such a loan is Stafford loan. 

If you do not know, keep in mind that subsidized loans are the loans on which no interest is accrued due to the financial difficulty when the borrower is in the period of deferment, forbearance, or still in school. 

Subsidized federal loans typically cost much less than other loans. As a result, the Federal Government receives almost no revenue from them. 

As per me, this change is not that bad. The existence of both subsidized and unsubsidized loans makes it more confusing for students. So the cancellation of it can clear up the situation a little. On the other hand, the main reason for the suffering of students is interest. People pay for ten even 15 years for the accrued interest. Still, they do not reach a point close to finishing to pay off their debt. So, from this viewpoint, the proposed change plan of President Trump does not look likely to benefit students. 

Cancellation of Public Service Loan Forgiveness

Perhaps, the most surprising, as well as, upsetting nuance in the Trump student loans change plan, is the cancellation of PSLF. Considering the benefits of PSLF for a lot of people, I disagree with this change plan. On the other side, President Trump does not want to leave its place empty. The program of student loan forgiveness Trump proposes will benefit everybody involved.

What is PSLF?

As you may know, in the PSLF program, people work in a qualifying public sector job for ten years in order to get their federal loans forgiven. During these years, they have to make 120 payments with income-based payments working in a full-time job. 

One of the decent sides of PSLF is that borrowers are free of making any payments after serving in the public sector for ten years. Still, I think there is even a better aspect of it. And it is the fact that they get away without paying any tax amount for their forgiven loan amount.

It is also worth mentioning that not everybody works in an eligible public sector job. And obviously, they do not access the benefits of PSLF. That said, they can also get their loans forgiven, but by making payments in 20 years. And the even worse part of it is that their taxable forgiven amount is different from the PSLF one.

New Forgiveness Plan of Trump

Now what Trump offers will apply to everyone. In other words, both the ones accessing PSLF and those who do not will benefit from this program. And in this new plan, borrowers will have to make payments for 15 years in order to get their loans forgiven. For graduate school borrowers, this duration will be 30 years.

Now, as you understand, this will make the situation worse for those who consider using PSLF. But it will also make it better for those who were paying back the debt amount for 20 years.

In a nutshell, this idea is not bad for me. But I dislike the very fact that some PSLF related benefits disappear.

The Change on Income-driven Repayment Plan

The next nuance in the Trump student loans changes plan is regarding modification in Income-driven repayment (IDR) plan. The new program of student loan forgiveness Trump offers may replace this repayment plan. The one most probably he will name “Trump’s loan repayment plan.” Now the question is whether the new plan will be better than the current one. 

To be very frank, for me, the current repayment program is not very enticing. Several of them are not very different from each other. But to understand the scenario better, let’s dig out the current Income-driven repayment plan a little bit. 

The Structure of the Current Income-driven Repayment Plan

The four options in the current Income-driven repayment plan are income-based repayment, PAYE, REPAYE, and income-contingent plan. 

In an income-based repayment plan, your situation is dependent on two factors. These are your income and debt amount. Here, your payback duration is extended to 20-25 years, depending on the previously-mentioned factors. Also, you will have to pay 10-15% of your discretionary income every month. 

In pay, as you earn (PAYE) plan, your case again hinges on your debt amount and income. If you qualify for it, you will have to pay 10% of your discretionary income for a duration of 20 years.

Revised pay as you earn (REPAYE) plan is very similar to that of PAYE. The only and main difference is that payback duration can be extended up to 25 years here.

At last, here comes an income-contingent plan. Here, the decisive factors are your tax filing status, your income, and the number of people in your family. Speaking of payback terms, you have two options here. The first one is to repay your entire loan debt amount in 12 years. Choosing the other one, you will have to pay 20% of your discretionary income for up to 25 years. 

Is the Current Plan Better Than the New One?

You are already familiar with the current Income-driven repayment plan. Now let’s check what student loan forgiveness plan of Trump looks like. Well, President Trump proposes you to pay 12.5% of your discretionary income for 15 years. 

To say something concrete as of now would not be rational. Because different forgiveness plans may suit different people. But one thing is for sure. The current repayment plans increase the number of payments by extending the repayment duration. As a result, you end up paying a lot more in the total amount. In other words, smaller amounts per month do not necessarily make you better off in the long term.

On top of that, the amount at the end of payback duration is taxable in the current Income-driven repayment plans. And this is literally terrifying since any borrower, including you, will have to pay this tax amount as a lump sum. And paying such a huge amount at one time is a significant challenge for many borrowers.

From this angle, the Trump student loans plan is comparatively better. Well, at least your payback duration is 15 years. And that means fewer number of payments, consequently, fewer total payback amount. Yet there is one last but critical point I should mention. What I am really curious about is whether the forgiven loan amount in the Trump student loan forgiveness plan will be taxable. If it is not, then this is the best bet, and I think it will considerably help millions of borrowers. But if it is taxable, then that is not ultimately better than the current IDR program. 

Automatically Enrolling the Delinquent Borrowers to the New IDR Plan

This part of Trump’s student loans topic is something that I cannot make strong comments on. As you understand, there is still nothing about the details of this tenet. I wonder what delinquent borrower exactly means in this context. After which specific period, a borrower behind his/her payments will be considered a delinquent one? 

So, as it is crystal clear, there are still quite a few details that should be announced so that we can state our opinion on it. That said, I find this tenet beneficial in general. It is mainly due to the fact that I think borrowers will be better off. If you wonder how, then note that many borrowers are confused about their loans. They are constantly trying to handle their loan debt properly, but are unable to do so. At last, they put this matter away and stop managing their debts.

Viewed from this angle, I think this tenet should be appreciated. Since it will automatically push borrowers to the current IDR plan, their life will be more organized. The outcome stemming from here will benefit not only the Federal Government, but borrowers, as well.

Obviously, we will have to wait to see all the nuts and bolts of this tenet. Once they are announced, we can come up with a more comprehensive judgment of it.

Decreasing the Number of “Improper” Pell Grants

The details of this tenet have not been announced yet either. The only obvious thing about it is Trump student loans plan aims to reduce the number of “improper” Pell grants. Now given this information only, my support is divided regarding this idea. Bear in mind that grants are not loans. So, it is not borrowed, but received. It means, if the number of such grants keeps increasing, educational institutions will keep increasing their costs, too. They will simply notice that people ask for money from the Government, and the Government supplies it. With this logic, I do not see this process end. And unfortunately, it is not an okay situation for us ordinary citizens either. Do not forget that all these grants are financed through the taxes that we pay. So, increasing the number of such grants will basically make us pay more taxes.

On the contrary, if this idea is realized, some low-income students will be unable to get grants to study. But the schools will still keep increasing their expenses. It means such students will have to get loans to study. 

In short, I am a bit undetermined in this idea. I support both sides, but at the same time, I disagree with both of them. And in general, I do not like the concept of grants. For me, everybody has to give something in return for what they get. That said, I strongly believe that education is for everyone. And nobody should be deprived of it. That is why, without getting acquainted with every detail of this tenet, it is hard to say something. 

Cancellation of Standard Repayment Cap

This is another idea from the Trump Administration that I appreciate. But married couples will be disappointed with that for sure. Note that in the former rule, the tax filings were done separately for married couples. As a result, it was possible for some borrowers to pay a smaller monthly amount. It was due to the reason that the income of the borrower’s spouse was concealed.

Considering this fact, I see it as one of the best aspects of the Trump student loans plan. You know why? Well, in the older version of this repayment cap, married couples were capable of literally misuse the assistance they were given. And that was making single borrowers pay way more than their married counterparts. You should agree that getting married should not bring you any advantage in this regard. 

In general, I think the loan forgiveness system in the US is built in a way that it splits borrowers into two groups. In the first group of people, there are those who receive all the advantages. The other group of people are the ones who always struggle with the payment. This is also one of the reasons why I support the idea of canceling the standard repayment. If realized, this will surely bring more fairness to the entire system.

Presenting “Risk-Sharing” with Federally-Financed Schools

Just like some of the tenets that I talked about above, this one does not have many details either as of now. But what I understand is the Trump administration aims to put some of the responsibility of federal loan defaults on education institutions that get government financing through student loans. 

And since there are still few details available regarding this idea, I assume some schools should stop anticipating the Government to support them financially in case their students default on federal loans. 

What I took out as insights from here is Trump student loans plan wants schools to be more selective with their students. In other words, President Trump wants such schools to accept students who have genuinely excellent potential. Going forward from here, I think this tenet can decrease the tax burden on ordinary people. As you know, defaulted loans are still paid. And the payers of such loans are people like us. So, once the schools with such loan holders stop receiving funding from the Government, our tax burden will be mitigated, too. So, it is good for many people, and I am cool with this idea for now.

What Can It Result In?

That said, what concerns me is the university admission processes that are expected to be modified. To be more precise, how a school will measure the paying ability of a person of 18 years? They do not have a credit history. They simply do not have anything that educational institutions can check and decide whether they are safe. I see only one option which schools may apply to reach more apparent consequences on admission processes.

The only option is these schools will begin accepting only rich students. It is understandable as schools will be sure such students will pay off their costs quickly. But admittance of only such rich students will mean low-income students will be deprived of quality education. On top of that, dividing people based on their financial condition will further lead to more severe issues. For instance, ethnicity and race will be seen as economic factors. Lastly, as a result of the realization of this tenet, I will expect technical programs to be more popular gradually compared to social sciences.

In brief, this part of the student loan forgiveness of Trump does not look very beneficial. Although it seems fine at first, going into detail shows that it can affect many aspects of the education system, such as the availability of higher education for poorer people, the types of programs provided at schools, etc.

Taking these factors into account, I believe this tenet will bring more damage to our education system than benefits. That is why I do not support it.

What is Not Covered in Trump’s Student Loans Plan?

Some topics were not covered by Trump student loans plan. I am mainly curious about three of these topics.

Tax Status Of Forgiven Loans

First of all, I wanted to hear something from President Trump regarding the tax status of forgiven loan amounts. Will it keep being such a huge distressing burden for borrowers? Or will there be some plan that will prevent borrowers from facing a financial disaster?

Authorities, and, in particular, Donald Trump, should understand that tax liability kills off all the benefits of forgiveness programs. It should be okay for many borrowers to pay around 10-15% of their discretionary income every month. But paying a large lump sum amount is something the significant majority of borrowers struggle with.

Bankruptcy Laws

The next question that is always in mind is about the bankruptcy laws? I wonder whether reforms about bankruptcy laws will be included in Trump’s student loan forgiveness plan. Or will it stay the same as it is now? The situation where you have to literally be unable to pay for your shelter, food, etc. for the sake of paying for your loans. This is a topic that should never be forgotten as per me. That is the reason I am looking forward to hearing something from President Trump with respect to it.

Private Student Loans

The third topic is probably the one that many people would like to see a solution. The private student loans which destroy the whole population with ridiculous rates, inflation, and substantial penalties. So, will President Trump take a measure about it? Will he make the private loan providers offer some mitigative support for students drowning with debt. For instance, it can be a sort of payback assistance, or forgiveness plan. Or maybe he will revive the bankruptcy law for private loan borrowers whose situation is much worse than federal loan borrowers? Or perhaps he will just ignore the entire situation as if there is nothing serious happening here. 

As of now, I cannot say precisely whether Donald Trump will take these topics into account when making reforms on student loans. Still, one thing is for sure. If these topics are included in Trump’s student loans change plan, they will have a much more significant effect on student loan issues than Trump’s currently proposed 15-year payback plans with a 12.5% interest rate. 

Paying attention to income tax issues on forgiven debt amount, bankruptcy law, and private student loan will literally make him the President of “Student Loans.” But since he is more focused on other fields, for now, I cannot say if that will happen anytime soon or ever. So, let’s wait and see altogether what kind of reforms will President Trump realizes.

What Did Original Proposal of Trump Look Like?

During his candidacy, Donald Trump was planning to bring two major modifications to the current student loan forgiveness program. The first one was to make the payback rate fixed at 12.5% for monthly payments of borrowers. And the other one was to make the payback duration fixed at 15 years.

If I say I did not like it initially, it would be untrue. I was delighted to see that people would have to make payments for 15 years. That means 60 payments less compared to the number of payments in 20-year repayment duration. As a result, borrowers would have to pay much less money in the end.

Nevertheless, at the very moment, I do not think Trump student loans plan will do any good for people. If you wonder why, note that Betsy Devos, the Education Secretary appointed by President Trump, has been trying to eliminate all student loan forgiveness plans initiated by the Obama Administration. To be more precise, she has been actively working on canceling the PSLF program. On top of that, she is doing her best to get the Borrower’s Defense Against Repayment program removed from being managed through the Education Department.

As you can also notice, what Trump was promising and planning do not comply with what he is doing now. As per me, I really wish he would start implementing what he promised in the beginning. Regardless of the forgiveness amount being taxed or not, making payments for 15 years would allow borrowers to save tens of thousand of dollars. And that would be great for an average American, especially making payments for 20-25 years.

Apply for Student Loan Forgiveness Help

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How Does Trump’s Plan Compare to Other Candidates?

To see whether Trump student loans plan is truly decent, I want to make a comparison of it with some candidates.

What Does Elizabeth Warren’s Plan Look Like?

One of the best plans, in my opinion, has been offered by Elizabeth Warren – Presidential candidate from Democrats. What she is offering is the Government will erase up to $50,000 from student loan debts of every person. Yes, you saw it right, $50,000. And the specific amount would hinge on the income of individuals. 

Elizabeth Warren emphasized that her student loan forgiveness plan would forgive the entire loan amount of 75% of borrowers. On top of that, 95% of all borrowers would receive some help from this program.

Digging out a bit more, we can see that people with an annual income below $100,000 would get the whole $50,000 forgiveness. The more income would mean the less forgiveness amount to be received from the Government. What I especially like about this plan is, it takes into consideration everyone who has an annual income of up to $250,000. And anyway, borrowers earning more than $250,000 should not ideally face any difficulty paying back their debt amount. 

Coming to the point whether I think it is better than student loan forgiveness of Trump, yes I do think so. And it is crystal clear that the proposal of Elizabeth is concise, accurate, and straight to the point. There are not any uncertain points that would make us confused.

What Does Bernie Sanders’ Student Loan Plan Look Like?

Although I praise the student loan forgiveness plan of Elizabeth Warren, for me, the best ever proposal has been made by Bernie Sanders. And Trump’s student loans plan does not even come close to it.

Basically, Senator Sanders is offering free college to people. It is true that families with an annual income of below $125,000 would benefit from this free college. Still, it is such an amazing plan that I could not do but applaud. The bigger bomb is still ahead if you think it is done already. What Sanders wants to do is apparently forgiving all student loan debt totaling more than $1.6 trillion. What is more to it, this plan covers private student loans, as well. And this is something that has never happened in the history of the United States.

One of the other tenets from the proposal of Sanders is; going forward, no restriction will be applied to benefit from forgiveness programs. Also, he wants to enable people to get student loans at historically low rates, provide them with need-based financial support and work-study programs. 

Now one question may arise in your mind, which is how he will realize all these? Well, Sanders is planning to finance all these tenets through a new tax that will be applied to Wall Street. 

What Do I Think about Trump Student Loans?

During his candidacy, Donald Trump mentioned that the student loan system was very similar to the tax system in terms of complications. To be very honest, I agreed to this point when he emphasized it. Yet, what he proposes does not look like streamlining the student loan system. 

The situation is anyway quite confusing for many Americans. There are numerous forgiveness programs, as well as, repayment plans which make people undecided on what they should follow.

It is true that the simplification of all these programs into one sole forgiveness program would be nice. At least people would know that there is just one way to get their loans forgiven and would go with that. Nevertheless, I am still uncertain whether Trump’s student loans plan will make the situation better for every borrower of federal student loans.

The problem with the current repayment systems is a borrower can decide on the plan he thinks is the best for him. But by time, if his financial situation changes, he can be worse off with the plan he is in. Having one sole plan is good in this regard, as well. Everybody would follow the same repayment plan and would be free of loan debt at the end of 15 years. 

In short, I applauded the student loan planning by Obama, too. But that helped only a little to federal loan borrowers. I do believe Trump’s student loans plan can be better in case it benefits every single borrower. 

Conclusion

It is obvious that Trump student loans plan is nowhere as good as his rivals in the presidential competition. Still, I do think that if implemented correctly, it can benefit a lot of students. Basically, bear in mind that making a payment at 12.5% of your discretionary income for 15 years will make any borrower save tens of thousands of dollars. However, it is not the case for now. As stated above, without seeing all the details of his loan plan, it is tough to make any judgment. But all in all, it has the potential of benefiting all borrowers if implemented correctly.