Donald Trump on Student Loan Forgiveness

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Before You Read, Lower Your Student Payment

It’s that quick & easy — really. Our free tool checks a network of top refinance lenders and shows you options in one easy chart.

Checking rates takes 2 minutes with no impact on your credit
Federal & private loans are eligible
No maximum loan amount

Student loans are a hot button issue and a topic of fierce debate as we approach the 2020 election. According to the Federal Reserve, the national student loan debt has reached an all-time high. As of the third quarter of 2019, student loan debt reached $1.5 trillion.

Student loan balances have become a major crisis, with millions of borrowers unable to pay down their debt. In fact, the Brookings Institute reported that nearly 40 percent of borrowers may default on their student loans by 2023.

President Donald Trump has already enacted some changes surrounding student loan forgiveness and education policies, and he has more changes planned. Here’s what you need to know about Trump’s ideas for student loans.

Changes that have occurred so far under Trump’s leadership

Under President Trump’s leadership, the following changes have already been enacted:

1. Automatic loan forgiveness for disabled veterans

In August, President Trump signed a memorandum that automatically canceled the student loan debt belonging to thousands of disabled military veterans. According to the President, more than 25,000 veterans would have their student loans forgiven, and they will not have to pay federal taxes on the discharged amount.

According to military advocates, this move was a major victory for veterans. Previously, disabled veterans could have their loans discharged through Total and Permanent Disability, but the process was time-consuming and required a lot of paperwork, preventing some of them from applying. With this change, disabled veterans would automatically see their loans forgiven.

2. Total Death and Disability Discharge no longer taxable

Under Trump’s Tax Cuts and Jobs Act — which went into effect in January 2018 — he changed the law surrounding Total Death and Disability Discharge for student loans. Now, the amount forgiven under Total Death and Disability Discharge is no longer taxable as income.

Previously, if your loans were discharged under Total Death and Disability Discharge, the IRS viewed the forgiven amount as considered ordinary income. You’d have to pay income taxes on the discharged balance.

Because the forgiven loans were considered income, disabled borrowers also risked losing their eligibility for certain federal and state benefits that they relied on for their care.

3. Tuition and Fees deduction expired

With the Tuition and Fees tax deduction, eligible taxpayers could deduct up to $4,000 from their taxable income to cover education costs. However, the Tuition and Fees tax deduction expired for 2018 and was not renewed by Congress. Because this tax deduction expired, taxpayers can no longer claim this deduction on their taxes.

Trump’s student loan policy proposals

In the U.S. Department of Education Fiscal Year 2020 Budget Summary, the Trump administration outlined several proposals surrounding student loan policies. These are the five biggest suggested changes:

1. Consolidate income-driven repayment plans into one plan

Currently, there are four income-driven repayment (IDR) plans for federal student loans. Under the 2020 budget, the Trump administration aims to consolidate these plans into one single plan. Under the new plan, borrowers’ payments would be capped at 12.5 percent of their discretionary income. Any remaining balances for undergraduate borrowers would be forgiven after 15 years of making payments. Graduate borrowers would have their balances forgiven after 30 years of making payments.

2. Expand Pell Grant eligibility to students in short-term programs

The budget would expand Pell Grant eligibility to students enrolled in high-quality, short-term programs. Currently, many postsecondary programs, such as coding boot camps or apprenticeship curriculums, are ineligible for Pell Grants because of their time and program length requirements. By expanding the Pell Grant program to cover these programs, more students could take advantage of them.

3. Eliminate Public Service Loan Forgiveness

In one of the most significant changes, the Trump administration moved to eliminate Public Service Loan Forgiveness (PSLF). Under the current system, federal loan borrowers who work for non-profit organizations or government agencies can qualify for loan forgiveness after working for 10 years while making qualifying payments.

The elimination of this program would be a massive blow to borrowers who plan on working in public service and were counting on PSLF for relief.

4. Eliminate subsidized loans

Under the Education Department’s budget plan, the Trump administration would also do away with Subsidized Stafford Loans. As a result of their proposals, all new undergraduate student loans would be unsubsidized.

Currently, undergraduate students with a financial need can qualify for subsidized loans. With subsidized loans, the Department of Education pays the interest on the loan while the student is enrolled in school at least half-time, for the first six months after leaving school, and during periods of deferment. By eliminating subsidized loans, borrowers would be responsible for paying all interest that accrues on the loan.

5. Upgrade student loan servicing

A common complaint among federal loan borrowers is how complex and outdated loan servicing is right now. The Department of Education’s budget would allocate $1.8 billion to upgrade the loan servicing systems. Dubbed the Federal Student Aid’s Next Generation Financial Services Environment, the new system would be modernized — complete with mobile capabilities — and designed to help students identify financial aid opportunities and increase efficiencies.

Looking ahead to the 2020 election

According to the Center for American Progress, 43 million Americans have student loan debt, making student loans a major issue for the upcoming presidential election. President Trump will make student loan forgiveness and reform a big part of his plans, and his proposals would make dramatic changes to the federal financial aid system.

If you’re worried about his proposals, keep in mind that these changes would generally only apply to future borrowers. If you already have student loans, these changes likely wouldn’t apply to you.

Regardless of where you fall on the political spectrum, it’s a good idea to research the policies of the different candidates so you can make an informed decision when it’s time to vote next November.

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