Trump’s Proposed Changes for Higher Education and Student Loan Programs

FT Contributor
President Donald Trump signing orders at a desk.
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The Trump administration’s 2020 budget proposal includes changes that could affect higher education. These proposed alterations have implications for current and future college students and those who have already completed college but still have student loans.

Overall, the 2020 budget will have an impact on education in America. In 2019, the U.S. Department of Education received $71.1 billion in funding. Trump’s 2020 budget plan reduces that amount by $7.1 billion, or about 10%.

How the Trump Administration’s Budget Could Affect Student Loans

The budget also includes plans to eliminate some programs related to student loans. For example, it would do away with the Public Service Loan Forgiveness Program, which forgives the higher education debts of college graduates who take jobs in the public service sector. Another proposal would limit income-based repayment programs so that there is only one option for calculating loan payments based on income. An additional change would limit the amount that students can borrow from federal student loan programs.

Overall, the stated goals of these budget proposals are to save money for taxpayers, simplify loan repayment, and open loan forgiveness options to all students. The long-term goal is to lower the cost of college tuition.

The 2020 budget is not law until Congress approves it, and they can make changes to the budget before doing so. However, future and current college students and former students who still have student loans should pay close attention to the decisions that the legislature makes because the budget could lead to significant student loan changes.  

Eliminate the Public Service Loan Forgiveness Program

George W. Bush’s administration created the Public Service Loan Forgiveness Act (PSLF Act) to reward people who take jobs in public service. The program is for those who work in national, state, or local public service positions or find employment with eligible nonprofit organizations.

The program forgives student loans for those who work full time in public service and make 10 years of on-time loan payments (for a total of 120 payments).

Under the budget proposal, students who are currently in the PSLF program will not see an impact. However, those who get loans after July 1, 2020, would no longer be eligible for this type of loan forgiveness.

Why Does the White House Want to End the Program?

The rationale for ending this program is that it will save taxpayers money. Furthermore, the government will replace the program with a plan that offers loan forgiveness for all students, not just those in public service. Critics say that cutting this loan forgiveness option will dissuade graduates from taking jobs in public service or with nonprofit organizations. Jobs in the military, law enforcement, public legal services, and charities currently qualify for the PSLF Program.

Alternatives do exist in some areas. These options are not as general as the PSLF, but they may provide loan repayment help and forgiveness for people who enter specific fields. For example, the Nurse Corps Loan Repayment Program is for nurses who work for at least two years in underserved healthcare sectors. The National Guard Student Loan Repayment Program aids students who serve or have served in the National Guard.

Extend Loan Forgiveness to Everyone

The Trump administration plans to extend loan repayment to all students. This proposal is to forgive all student loans after students make 15 years of on-time payments (or 180 payments). The amount due each month would be based on income. The goal of this change is to extend loan forgiveness to every student regardless of their career choice. Additionally, student loan forgiveness would be simpler to apply for, understand, and administer.

Limit Student Loan Borrowing

The amount that students can borrow from federal programs to pay for college is already limited. The Trump administration’s plan would put further limitations in place. These proposed limitations will affect all new student loans if the cuts are part of the final budget approved by Congress.

There are several motives for these loan limits. First, the restrictions would cap the amount of debt that a student could incur from their education. Second, the limits would, in theory, force colleges to lower or cap their tuition and fees or at least stop them from increasing tuition. Also, if students have to borrow less to attend college, their loan repayments will be more manageable, and fewer students will default. Taxpayers have to cover the cost of defaulted loans.

What are the Potential Drawbacks of Limiting Student Loans?

Critics say that these limits on loans do not legally require colleges to lower tuition, so colleges could keep raising their prices and expect students to borrow from private sources or pay out of pocket in addition to getting government-backed loans.  

The impact of this plan depends on how colleges respond to the caps on loans. If they do not cut tuition or maintain current rates, students could potentially have to borrow from private sources, pay more tuition upfront, or limit their college choices.

Simplify Student Loan Repayments

Currently, those with student loans can take part in income-driven repayment plans. Examples of these plans include the PAYE and REPAYE programs. These repayment options allow students to make regular payments of an amount that fits their income, family size, living situation, and other economic variables. The goal is to make repayment manageable so that there are fewer defaults.

The Trump administration’s plan involves simplifying the process by offering only one income-driven repayment plan that, if the borrower makes payments on time, could lead to loan forgiveness. The goals are to streamline repayment, lessen the administrative burden of operating multiple repayment plans, and make repayment options clearer. Additionally, some students could receive loan forgiveness sooner under the new program than their current one.

Who Do the Changes Affect?

This change will affect both students who are applying for loans in the coming years and those who are currently paying off loans through an income-driven repayment program.

Critics say that having a single repayment program will limit options for students who need flexibility in their repayment. Also, the program would lengthen the amount of time that graduate students have to pay until they receive debt forgiveness.

End Subsidized Loans

Subsidized student loan programs pay the interest on student loans while the student is in college. The Trump budget plan for 2020 would eliminate these subsidies. The reason for ending this kind of support is that it would allow the government to collect interest payments, which would lower the burden on taxpayers. However, the additional interest charges could make the overall cost of the loan more expensive, so students who use federal loans would have to pay slightly more to attend college.

These changes to student loan programs and higher education could affect students who are planning to get loans to pay for college. Also, the 2020 budget proposals could affect students currently in college and graduates who are still paying for student loans.

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