Scary news ahead if graduated from college in the last 10 years!
President Trump and Secretary of Education, Betsy DeVos’ have initially proposed an education budget that will seek to eliminate the Public Service Loan Forgiveness program which could be devastating to many borrowers and cost student loan borrowers billions of dollars! Furthermore, Trump and DeVos will likely seek to eliminate over $700 million in Perkins Loans and massively reduce work-study programs.
The Congressional Budget Office estimates that ending subsidized federal student loan lending – in which the federal government pays the interest cost on these type of student loans while a borrower is still in school – would save $26.8 billion over 10 years.
President Trump originally proposed an income-based repayment plan that would allow borrowers to cap their monthly student loan payments based on their income, and then have their student loans forgiven after a certain period of time.
Under the Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) income-based repayment plans, borrowers pay 10% of discretionary income each month toward their federal undergraduate student loans for 20 years, at which point any remaining balance is forgiven.
Under REPAYE, for borrowers with graduate school student loan debt, the repayment period has increased to 25 years before the remaining student loan balance is forgiven.
The draft budget seeks to combine the current federal repayments plans into a single repayment plan – consistent with Trump’s campaign promise.
This repayment plan would apply differently to undergraduate and graduate student loan borrowers.
For undergraduate student loan borrowers, monthly student loan payments would be capped at 12.5% of income (it’s currently 10%). After 15 years of monthly payments, any remaining student loan debt would be forgiven.
However, while graduate student loan borrowers would also have their monthly student loan payments capped at 12.5% of income, student loan forgiveness would not occur until after 30 years (that’s 5 years later than the current repayment period under REPAYE).
This is all “proposed” plans all this point. Nothing has been passed yet. If this could affect you, this would be a good time to start looking at other options so that you can continue to afford paying your student loans back. Some borrowers may be “grandfathered” in, but again nothing has passed so we don’t know.