President Donald J. Trump is the incumbent president for the 2020 election year. Since he has been in office for almost a full term, he and Secretary of Education Betsy DeVos have already made some changes to student loans. They are also developing further policies as part of Trump’s 2020 campaign platform.
In his first term, Trump and his administration have changed several aspects of student loan payment and collection.
- People with total and permanent disability discharge or death discharge are no longer required to count this form of student loan cancellation as taxable income.
- The tuition and fees tax deduction was allowed to expire as part of the Tax Cuts and Jobs Act, so college tuition and associated fees are no longer tax deductible.
These changes can save money for both the government and the taxpayer. Keeping this goal in mind, the Trump/Pence campaign has more student loan changes proposed as part of their 2020 platform. While these are proposals and not law, they could become laws if Trump wins reelection.
Proposed Changes in the 2020 and Republican Campaign Platform
Here are some of the proposed student loan changes that are part of the Trump 2020 campaign:
- Eliminate the Public Service Loan Forgiveness (PSLF) program. Signed into law by President George W. Bush in 2007, this expansive form of student loan forgiveness allowed many who worked in several public service jobs like teaching, law enforcement, and medicine to apply to have their federal student loans forgiven over the course of 10 years. While 10 years is the standard repayment period, PSLF offered the chance for more people to enter lower-paying positions and have any remaining student loans forgiven after a decade.
The first PSLF loans were forgiven in 2017. However, under President Trump, very few of those who applied to PSLF originally have had their loans forgiven. Of 41,000 applicants, the Department of Education has forgiven only 206 loans.
- Eliminate subsidized student loans. Currently, there are three student loan programs offered by the Department of Education under the direct loan program: subsidized, unsubsidized, and PLUS loans. Unsubsidized and PLUS loans accrue interest while you are in school, although you can apply for an education deferment to make only interest payments while you complete your degree.
In contrast, subsidized loans do not accrue interest while financially-needy undergraduate students complete their degree programs. They often allow a six-month grace period after graduation to accommodate the time it takes to find a job.
- Eliminate the student loan interest deduction. Currently, up to $2,500 of interest payments you make on your student loans throughout the year can be claimed as a tax deduction. This is true for both private and federal student loans. By eliminating this benefit, upper-middle-class earners will likely owe more in taxes.
- Eliminate income-driven repayment plans. The 2020 budget proposal, which is part of Trump’s 2020 reelection campaign, suggests stopping the income-based repayment plan (IBR), income-contingent repayment plan (ICR), the Pay As You Earn (PAYE) repayment plan, and the Revised PAYE (Re-PAYE) repayment plan.
The goal is to reduce student loan debt overall by capping monthly payments at 12.5% of the borrower’s monthly income, make the standard repayment plan 15 years rather than 10 years, and offer a 30-year repayment plan to graduate students.
- Ease loan forgiveness for disabled veterans. This would be an extension of changes to the total and permanent disability tax relief that has already been passed. Under this addition, the federal government could automatically enroll veterans who qualify for Total and Permanent Disability (TPD) Discharge into this student loan cancellation program. Veterans would be notified that their loans are canceled rather than notified that they qualify to have their loans discharged.
- Expand Pell Grant eligibility for short-term programs. The federal Pell Grant provides “free money” for postsecondary students who have significant financial need. To encourage more students to enter trade or professional schools and pursue different degrees and career paths, the Trump 2020 budget suggests expanding the Pell Grant program to cover more community, professional, and trade schools, not just four-year baccalaureate and post-baccalaureate programs.
- Cut the Education Department’s budget by 10%. While many presidential candidates in the Democratic party call for eliminating student loan debt by forgiving most or all student loans, the Trump administration proposes a 10% cut to the DOE, so it will make fewer student loans in the first place. Students may end up taking out more private student loans to fund their postsecondary education, or they will end up funneling into different, less expensive programs that offer better job prospects.
How Do These Changes Impact Students & Graduates Repaying Loans?
While some of the proposed changes can hurt individual taxpayers by removing repayment or forgiveness options, tax deductions, and other forms of federal support, the goal of the proposed legislation is to reduce student loan debt by disincentivizing people from taking out so many student loans. The budget also suggests:
- More money from the DOE should be invested in career and technical education.
- Federal work-study programs will emphasize developing students’ skills for the workplace.
- Ineffective and redundant programs will be cut.
Repayment plan changes allow for across-the-board access to payment plan schedules. For many, this will reduce the amount they must pay every month. Getting rid of many of the tax deductions will also simplify taxes for everyone.
Eliminating the PSLF could harm some job types, however, by disincentivizing low-paying public service positions. First responders, firefighters, police officers, and members of the U.S. Armed Forces will not have their student loans forgiven.
By returning the student loan bankruptcy program to its state prior to 1998, many people in these jobs could find a way to get rid of their student loans anyway. Unfortunately, it’s one that marks their credit score.
Several Democratic Proposals to Contrast the Republican Budget
With several Democratic candidates still leading in the polls, there are many different versions of student loan elimination, repayment, forgiveness, and other programs coming from the other side of the aisle. The Trump/Pence 2020 campaign platform and proposed 2020 budget offer a different spin to simplify student loan programs and associated tax deductions or relief.