Trump's New Budget Would Kill Student Loan Forgiveness Program
For many nonprofit and public sector employees, the Public Service Loan Forgiveness (PSLF) program has offered some much-needed relief. Under the program, borrowers who work in the public sector can opt for student loan forgiveness after 10 years, eliminating the balance of their debts. It's among the more popular options for student loan forgiveness.
The first wave of student loan borrowers are slated to get their loans forgiven under the Public Service Loan Forgiveness program in October 2017. But there’s now concerns the program might not last, as the Trump administration’s proposed budget seeks to do away with the program.
What Is Public Service Loan Forgiveness?
The program, which was unveiled in 2007, allows student loan borrowers who work in the public sector and make payments for 10 years to get their loans forgiven. One of the benefits of this program is that borrowers will not have to pay tax on their forgiven balances, unlike forgiveness through other programs like income-driven plans.
For nonprofit employees and government workers, the PSLF program has helped ease the burden of debt while working in fields that are rewarding, but not necessarily financially lucrative.
Though the program has been a boon for borrowers, it’s not been without any issues. Earlier this year, The American Bar Association (ABA) sued the Department of Education after several ABA employees who were previously approved for the program were later denied. In other words, student loan borrowers thought they were making payments toward the program and working toward student loan forgiveness, but later found out their employment didn’t qualify.
Budget Proposal Calls for the Program's Elimination
Today the White House released the budget proposal for Fiscal Year 2018. As part of the proposed plan, Trump would slash $9.2 billion from the education budget Most notably, as part of the plan President Trump calls for an end to the Public Service Loan Forgiveness Program.
The proposal cites various complications with current income-driven plans and proposes eliminating the Public Service Loan Forgiveness program as a means of fiscal responsibility. Currently, the program is turning out to be more costly than originally expected.
According to a Brookings Institute report, “Budget agencies recently revised the projected cost of the program upward by a staggering amount, and the U.S. Department of Education reports that many PSLF enrollees borrowed over $100,000 to finance graduate degrees.”
Forgiving high student loan balances for millions of student loan borrowers comes at a cost, and under Trump’s new plan, the program might come to a halt.
According to the budget proposal:
“To support this streamlined pathway to debt relief for undergraduate borrowers, and to generate savings that help put the Nation on a more sustainable fiscal path, the Budget eliminates the Public Service Loan Forgiveness program, establishes reforms to guarantee that all borrowers in IDR pay an equitable share of their income, and eliminates subsidized loans. These reforms will reduce inefficiencies in the student loan program and focus assistance on needy undergraduate student borrowers instead of high-income, high-balance graduate borrowers. All student loan proposals apply to loans originated on or after July 1, 2018, except those provided to borrowers to finish their current course of study.”
Currently, more than half a million student loan borrowers are working toward loan forgiveness under the program.
Under the proposed budget, it’s not clear how these prospective changes would affect current student loan borrowers. Given the timeline of the changes (July 1, 2018), it seems likely that current students would be grandfathered into the program, though it’s not certain.
What’s Next for the Public Service Loan Forgiveness Program?
If you’re hoping to take advantage of the perks of Public Service Loan Forgiveness, you may be wondering what’s next. Will you be able to get your loans forgiven? Is it worth it to be a part of this program? You may have a lot of questions, and as of now, there aren’t a ton of definitive answers.
While the news about the proposed cut is anxiety-inducing, nothing is official yet. This is still just a budget proposal and would need to be approved by Congress, and lawmakers from both parties have already stated that it will likely go nowhere in Congress.
If you’re currently pursuing loan forgiveness through PSLF, the best course of action you can take is to continue to make payments on your student loans. And if you think this is a program that the government should keep around, call your congressperson.