President Donald Trump has proposed to eliminate the Public Service Loan Forgiveness program, or PSLF.
This student loan forgiveness program is an essential resource for people with high amounts of student loan debt — who work in the public or nonprofit sectors — to get much needed relief.
How could the end of Public Service Loan Forgiveness happen? Here’s the full breakdown.
What is Trump’s plan?
Throughout his presidency, Trump has expressed his desire to cancel the Public Service Loan Forgiveness program. His new annual budget proposes $5.6 billion in cuts to the U.S. Education Department.
With this budget change, which includes multiple modifications to student loans, Public Service Loan Forgiveness would end.
The budget would need to be passed by Congress to take effect.
Why end student loan forgiveness?
President Trump is likely hoping to save the federal government money and help federal taxpayers by eliminating PSLF.
The end of this program would, in theory, save the government billions of dollars in federal student loan forgiveness. But this would come at the expense of those who rely on PSLF to help make ends meet as they take on lower paying — but critical — jobs in the public sector.
Another point to consider is that, compared to Income-Driven Repayment (IDR) plans, the federal government likely loses money on PSLF. IDR plans — including Income-Based Repayment, Income-Contingent Repayment, PAYE, and REPAYE — are another option for student loan borrowers to get forgiveness after 20 to 25 years of reduced payments, which are based on income level.
Generally, if you enroll in an IDR plan, you will pay more over time in interest than you would on a standard repayment plan, even when the loan forgiveness is taken into account. Additionally, when your loans are forgiven under an IDR plan, the amount forgiven is taxable as income.
In other words, the government receives more money from someone who stays on an IDR plan for 20 to 25 years than a borrower who has loans forgiven in 10 years under PSLF.
Who would this impact?
Teachers, nurses, doctors, other medical professionals, prosecutors, and public defenders are some of the most common professions who take advantage of Public Service Loan Forgiveness. However, anyone who works more than 30 hours per week at an eligible nonprofit or public service organization at the federal, state, or local level can apply for PSLF.
With careers that typically need years of higher education, those who use PSLF often have extremely high student loan debt and monthly payments. Under PSLF, eligible participants have their remaining federal student loan debt erased after 120 payments over 10 years.
Currently, over 2.5 million borrowers are enrolled in PSLF with a total loan balance of over $107 billion. However, this proposal would only affect future borrowers and not those who are already making eligible payments toward PSLF.
PSLF is an important decision factor for people considering whether to pursue public service and nonprofit careers — and whether to remain in their positions for at least 10 years in order to qualify for forgiveness.
What to do next?
Many presidential candidates for the upcoming 2020 election have opposing views to Trump’s proposed end to Public Service Loan Forgiveness.
Bernie Sanders and Elizabeth Warren have both stated their intent to cancel student loan debt. For example, Sanders’ plan would forgive all $1.6 trillion in both federal and private student loan debt for any borrower.
If student loans are a high priority topic for you, it’s essential to do research on each candidate’s views and proposals surrounding student loan forgiveness.
And if the end of PSLF becomes a reality — it’s also important to learn about alternative solutions that can help with student loan repayment:
- Student Loan Refinancing: Refinancing allows you to take out a loan from a private lender that covers the cost of your current debt. The new loan is completely different from your old ones — with a new interest rate, repayment term, and monthly payment. And, if you had multiple student loans before, refinancing consolidates them into just one loan and one monthly payment going forward.
- Student Loan Consolidation: Federal direct student loan consolidation streamlines your payments, combining your federal loans into one. The interest rate is determined by using the weighted average of the interest rates on all the loans being consolidated.
- Income-Driven Repayment Plans: Income-driven repayment plans change your monthly payment to a percentage of your discretionary income. There are four plans to choose from, and for some plans, this payment has a cap. After 20 or 25 years of income-driven payments (depending on the plan and your situation), the remaining balance is forgiven.