Listen Up! Your Public Service Loan Forgiveness Program Might Be Going Away

Public Service Loan Forgiveness

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.

What’s the possible impact to federal financial aid?

 

The impact to federal financial aid could include:

  • $700 million in cuts to Perkins Loans, this would greatly affect disadvantaged students
  • $487 million in cuts to federal work-study programs.
  • $8 billion in cuts to subsidized student loans.
  • $16.3 billion over 10 years in additional funding for Pell Grants and support for year-round Pell Grants. Although, $3.9 billion would be taken from the Pell Grants program’s reserves.

 

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.

 

What is the possible future of student loan repayment?

 

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.

 As of today, the standard federal government student loan repayment period is 10 years.

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).

 

How will student loan borrowers be impacted?

 

Here are some key points:

  • If subsidized student loans are eventually reduced or eliminated, the cost to attend college and graduate school could become more expensive.
  • A reduction of multiple repayment plans to a single repayment plan may simplify the student loan repayment process.
  • Undergraduate student loan borrowers could have their student loans forgiven after 15 years (five years sooner), which potentially could save the borrower in interest costs and eliminate student loan debt five years sooner than the current repayment plan, but the monthly payments could be higher.
  • Graduate student loan borrowers would have their student loans forgiven after 30 years (five years later).
  • Public servants would not be able to rely on Public Service Loan Forgiveness to have their student loan debt forgiven (after 10 years). This program would go away, but borrowers would most likely alternatively participate in the proposed 15-year or 30-year repayment plan (depending on undergraduate or graduate status).
  • Year-round Pell Grants would enable students to attend three semesters of college per year, which could help students borrow less money and graduate faster.

 

Take Away

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.

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