Like him or not, President Elect Donald Trump’s Student Loan Forgiveness Program is better than anything anyone else has ever put together.
In fact, President Trumps plan for student loan debt is likely to save you far more than the current Obama Student Loan Forgiveness Program ever could (unless you qualify for PSLF…), because it offers completely debt forgiveness 5 years sooner than President Obama’s plan.
However, like many of Donald Trump’s other proposals issued during the hotly contested 2016 Presidential Election, we’ve so far been given only a brief glimpse at the framework he seeks to create, with few scant details about eligibility requirements and the other fine print that’s sure to be included in the final law.
Regardless of how things turn out, if President Trump can successfully use his Art of the Deal skills to negotiate a final settlement that delivers on the two main points he’s proposed, the average Federal student loan borrower will be in for a huge cost savings.
What Is Donald Trumps Student Loan Forgiveness Plan?
Donald Trump’s plan includes two major reforms to existing Federal Student Loan Debt Forgiveness, including:
1. Monthly payments will be capped at 12.5% of borrower’s income
2. Complete forgiveness will be offered after 15 years of payments
While the monthly payments are capped at a slightly higher rate than what’s currently available through the Obama Loan Forgiveness Program (his repayment plans cap payments at just 10% of income), that 5 years earlier forgiveness is likely to save a lot of borrowers a great deal of money.
Current Federal Student Loan Forgiveness Plans
Let’s compare President-elect Trump’s plan to the existing Federal forgiveness options currently available in 2016:
1. Monthly payments are capped at 10% of the borrower’s income
2. Complete forgiveness is offered after 20 years of payments
The Public Service Loan Forgiveness Program
1. Monthly payments are capped at 10% of the borrower’s income
2. Complete forgiveness is offered after 10 years of payments
While the Public Service Loan Forgiveness Program remains the best student loan debt forgiveness option bar-none, President Trump’s proposed plan is likely to do more good for the wider population, since he seems to be proposing that it be made available to ALL BORROWERS.
There’s been no mention, however, of Private Student Loan Debt Forgiveness, which is unfortunately the final frontier of the student loan industry that remains to be tamed, and the one causing so many people so many financial problems.
Two Changes Promised by President-Elect Trump
Thus far, Donald Trump has promised to tackle the student loan crisis by making two major changes to federal student loan laws:
1. Replacing all existing Federal repayment plans with his new Income-Based Repayment Plan (I’m guessing it’ll be called the “President Trump Student Loan Repayment Program”), which will limit monthly payments to 12.5% of income
2. Offering total Federal student loan forgiveness after 15 years worth of payments are made (I’m assuming that those payments will need to be paid on time, and in full, just like the existing Federal forgiveness plans require)
Donald Trump has said that he’ll be able to raise the money to pay for these increased Federal costs by decreasing Federal spending in Education and other areas, but no details have yet emerged to show precisely that would be rolled out.
Also, I’d like to note that there would be some Federal savings by removing the excellent (best current option) Public Service Loan Forgiveness Program, with it’s forgiveness benefit offered after just 10 years worth of payments are made, but that this is moving backwards in loan forgiveness benefits, because PSLF truly is the gold standard of student loan forgiveness programs. I would hate to see it removed.
What Other Changes Has Donald Trump Discussed?
Outside of the two changes mentioned above, President-elect Trump has also discussed the possibility of reforming several other areas of Federal student loan laws, including:
1. Stating that the Federal Government should not be making any money off student loans. In my opinion, this means that he either wants to get the Government out of student lending entirely (could be a good thing… but potentially scary) or decrease interest rates to zero, or perhaps to match inflation (which would be an excellent thing for future borrowers).
2. Suggesting that he would wipe out the Public Service Loan Forgiveness Program, and replace it with his 12.5% repayment, forgiveness at 15 years plan, outlined above. Again – I think this is a scary prospect, especially as the first people to receive forgiveness under PSLF will be eligible in October of 2017. If President Trump removes the program, that forgiveness eligibility could be in jeopardy.
3. Talking about reducing college tuition costs by forcing school and universities to reduce their extreme administrative expenses. I find it highly unlikely that he’s able to make any ground on this claim, especially considering he was elected by a Republican (Conservative) population who is not too keen on financial regulation. I think this may have just been empty campaign rhetoric.
4. Saying that he would reduce federal regulations on schools and universities so that they don’t have to spend as much money on legal and compliance costs, which would allow them to pass the savings on to students. I could believe that he would repeal some of the existing compliance regulations, but I doubt the schools would actually pass those savings onto students (unless forced to do so…).
5. Requiring that Colleges and Universities spend their endowment money on students, rather than on investment packages, administration personnel, etc., which should help them keep tuition costs lower. He even threatened that he would cut federal tax breaks for schools that didn’t comply with some sort of regulation around this topic. Again though, a Conservative enacting regulation of a business? Seems unlikely to me.
6. Threatening to remove tax-exempt status from any schools that don’t actively work to reduce the costs of their degrees, credentials and certificate programs. I think this too is an outlier, and was probably something said to sound good on the campaign trail. I just don’t see a Republican President passing new regulations on a business as large and powerful as the higher education industry.
Most of these discussion points would make things better for existing and future Federal student loan borrowers, but a few of them are slightly scary to me.
Unfortunately, there’s no way to predict which of Donald Trump’s discussion points will turn into active positions during his Presidency, so we’ll all just have to keep our fingers crossed that he adopts the positive positions as policy objectives, and forgets about the stuff that would harm borrowers.
What Hasn’t President-Elect Trump Covered?
There’s a few topics that we’ve absolutely nothing about from Donald Trump, including three extremely important topic areas that I am very interested in, and which I’m hoping will eventually end up on President Trump’s radar:
1. What will President Trump do about tax liabilities for forgiven student loan debt? Will people need to claim amounts forgiven as income on their annual tax filings, or will they get a tax break or credit of some sort that prevents them from facing financial ruin?
Student loan debt forgiveness is only useful to most people when it does not require any sort of additional tax liabilities, and could absolutely destroy the finances of many people who would be able to continue making small monthly payments, but could never hope to raise a huge amount of money for a lump-sum tax cost.
2. What will President Trump do about reforming bankruptcy laws? Will he reform Student Loan Bankruptcy Law to allow people to discharge their debt via bankruptcy proceedings?
Or will be continue on the previous tack that makes it impossible to get rid of crushing student loan debt, unless it’s literally preventing you from affording food, shelter and clothing? Does his experience in using bankruptcies as strategic business tool mean he’ll have a soft spot in his heart for borrowers currently buried in excessive student loans? Or will his Republican Conservative leanings mean that there’s no hope for bankruptcy reform?
3. What will President Trump do about runaway PRIVATE student loan debt, which is literally destroying entire segments of the population with runaway inflation, insane interest rates and excessive penalties and fees?
Will President Trump try to step in and wrangle the private lenders, forcing them to offer some kind of forgiveness, repayment assistance, or other financial benefit to the destitute borrowers who have no hope of ever paying back their loans? Will he open up bankruptcy opportunities for private student loan borrowers? Or will he simply ignore the situation entirely like President Obama did?
I’m not sure what President Trump will do about these three topics, but I am sure that his response (or lack of response) to them is likely to have a bigger impact on student loan debt and the student loan industry than will the introduction of his 12.5%, 15 year forgiveness plan.
Tackling the tax liability, bankruptcy laws, and private student loan debt topics could turn President Trump into the Student Loan President, but it’s too early to tell what he’ll do on any of these three topics.
The only thing that’s for certain is that me, you, and the rest of the country will be watching his comments on student loan debt closely, looking for a signal of which way the Trump wind will blow, and preparing ourselves for the potential that massive reforms and benefits may soon be offered to people who’ve been struggling with debt for far too long now.
What Can You Do To Help?
Join in on discussion sections like the one below on this page, share content on Facebook, create your own Blog, write your representative or Senator, or the Trump administration itself and ask for student loan reform!
I have a feeling that President Trump, perhaps more than any previous President, will have his ear to the people, and will do things that he thinks the American Public is clamoring for.
If we know anything about Donald Trump, it’s that he wants to be popular, that he needs to be liked, and that he may be more open to changing his stances if he sees political fortune blowing in a certain direction.
Right now there’s a better chance than ever before to get actual change enacted to student loan lending laws, so don’t neglect your chance at helping to reform a brutal system which has forced so many into unending financial destitution.