Trump Students Loan Forgiveness Plans and How It Compares to Others.
Trump Students Loan Forgiveness: Heating up is the fight for the 2020 presidency. Yet ambitious student loan forgiveness plans have been proposed by several of the leading Democratic candidates. But President Donald Trump himself has made changes to some student loan forgiveness. And he’s got several more ideas on the table.
With the passage of the Tax Cuts and Jobs Act in December 2017, Trump’s student loan forgiveness reforms began. But Trump’s 2020 budget proposes even greater changes— including consolidating revenue-driven repayment plans and eliminating loan forgiveness from the public service.
This guide covers all the changes Trump has already made to student loan forgiveness, potential changes in 2020 and how they are compared to other leading proposals.
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.
1. Total Death and Disability Discharge no longer taxable
If borrowers with federal student loans are permanently disabled, the Full and Permanent Disability Discharge (TPD) program requires them to seek student loan forgiveness.
Forgiveness was historically viewed as taxable income through this system. But this was modified by the Tax Cuts and Jobs Act.
This is good news for lenders with disabilities. Imagine getting $50,000 in TPD forgiveness. Even if you were in the 12 percent tax bracket, at least a $6,000 tax bill would be created.
Coughing up a chunk of that big change at any time would be difficult, but especially when you can’t work. This was simply not fair, and it’s nice to change the rule.
However, it is important to note that the law is not retroactive. Only loans on or after January 1, 2018 are eligible.
2. Tuition and Fees Deduction no longer available
The Tax Cuts and Jobs Act removed the deduction of tuition and fees. You could use this deduction for some school expenses before it expired. Types of qualified expenses are application fees, tuition fees, course books, and laboratory fees.
This deduction is no longer available, it’s a bit of a bummer. But a number of other common loan tax programs for students remain unchanged. The American Chance Tax Credit, Lifetime Learning Credit and (for now) Student Loan Interest Deduction are still eligible under the current tax code.
Trump’s 2020 student loan proposals
Trump has much bigger student loan changes in mind. If his 2020 budget is approved, it could have drastic effects on the student loan landscape. Here are a few of the notable student loan proposals included in the White House 2020 budget.
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 is to consolidate all the plans into one. The rationale is 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. But if Trump’s proposals pass, monthly payments would increase to 12.5% of a borrower’s discretionary income.
Make IDR student loan forgiveness sooner for undergraduate loans
Along with the consolidation of the four IDR plans into one, student loan forgiveness would happen 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 take longer.
Under Trump’s plan, graduate borrowers would need to make 30 years of payments before qualifying for forgiveness. That’s five years longer than current IDR plans for graduate loans.
Eliminate Public Service Loan Forgiveness
He wants to end the Public Service Loan Forgiveness (PSLF) policy in what is probably the most controversial move by Trump. The Trump administration maintains that PSLF is a disaster, giving public service workers unequal preferential treatment. That says giving all federal student loan lenders a 15-year repayment is a better plan.
A lot of overhead would theoretically be reduced by eliminating this form of student loan forgiveness, as the Department of Education would no longer have to deal with the 10-year hassle of checking work information from PSLF applicants.
What Trump’s opponents say
Opponents of the change (and there are many) say the need for PSLF. They believe the program encourages the selection of public service professions by qualified workers. When it comes to eliminating PSLF, Trump will have a fight on his hands. He’s tried and failed since.
Even if this bill could be passed into law, it would apply only to potential student loans. You should be able to complete the program if you have already been accepted into the PSLF program and have made qualifying payments.
Eliminate subsidized student loans
Now, when borrowers are still in class, certain federal student loans do not increase interest. Borrowers must demonstrate financial need in order to qualify for these subsidized federal student loans.
You will take out an unsubsidized federal student loan if your family income is too high. But Trump wants to completely eliminate subsidized student loans.
This is certainly going to be an unpopular proposal again. It will also have a hard time going through both Congress’s houses.
How Trump’s student loan forgiveness plans 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.
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.
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
For any bill to become law, both the House and the Senate must approve the plan. And in our polarized political climate it will be impossible for far-left or far-right bills to get through.
Trump, the presidential candidates of Democratic and other parties all have their own ideas on how to fix the student loan mess. In 2020, if one party can win the presidency, the House, and the Senate, it may be able to push through its bolder ideas.
Otherwise, for progress to be made, it will take both sides to work together (and make compromises).