With graduation in sight, Trump’s budget cancels my loan repayment plan
Over the past decade, more than 550,000 students have applied for the civil service loan forgiveness program, pledging to put their dreams on hold in order to invest in careers that will pay them back. thousands of dollars in college debt.
In October, the first wave of loan cancellation recipients who applied for the program after its inception in 2007 under the Bush administration will see the remainder of their debt relieved at no apparent cost to the government.
In May, President Donald Trump and US Secretary of Education Betsy Devos proposed major cuts to the Department of Education’s new budget, including the possible elimination of the Public service loan forgiveness program (PSLF) in total. If the proposal is accepted, its cuts could reduce the budget of the Department of Education by more than $ 10 billion.
In explaining his reasoning for the proposal, the president pointed out that the government “shouldn’t be making money on student loans.” The president’s suggestion ignores the fact that the program was designed specifically for the purpose of encouraging Americans to take up public service jobs, while also providing students with a way to start paying off debt immediately after graduation. of their diploma.
Critics of the program, however, applaud the suggestion, as they decried the PSLF for the way it makes low-paying service jobs attractive to students, an incentive they say encourages students to take on larger debt. . The Obama administration has proposed to cap the amount of debt that would be forgiven, but Trump and DeVos want to get rid of the program altogether. If the discounts are accepted, students and recent graduates can expect their reimbursement options to undergo several changes.
What is the Public Service Loan Forgiveness Program (PSLF)?
Congress created the PSLF program under the Cost Reduction and Access to Colleges Act, 2007 to reduce the time it takes for individuals to repay their debt in exchange for full-time work in the public service. Applicants must be financially qualified and employed by an approved employer, under which they will be required to make a minimum of 120 payments on their direct loans, including Direct PLUS loans.
Eligible employers include all federal, state, local, and tribal government agencies / organizations, including most non-profit organizations; U.S. military employees, public transport workers, public school teachers, and college systems employees are also eligible. Full time, by definition, is at least 30 hours per week.
After making the 120 payments, individuals can request a loan forgiveness. Unfortunately, loans canceled under the PSLF are not taxable by the IRS. While there is no income requirement, payment plans are based on the individual’s income level and work with the qualified employer to determine if the resulting payments will cover the 120 required payments.
All standard income-based, 10-year repayment plans are eligible for the PSLF program (although the program discourages borrowers from opting for a 10-year plan. and join the PSLF, because a 10-year plan means you’ve paid off your debt in ten years, so the PSLF wouldn’t have to remit anything).
Under the income-based repayment plan, borrowers will be required to pay at least 10% of their income to repay their loans. Paying a monthly supplement will not make you eligible for a pardon sooner, and repayment cannot begin until the end of the six-month grace period for new graduates or for people who are no longer enrolled full-time.
The advantages of the DeVos proposal
With Trump and DeVos’ proposed revisions the way borrowers will be able to repay their loans, there will be no PSLF. For the income-based plan, the revisions reduce the number of years you have to pay, from 20 to 15, but increase the percentage of your required income, from 10 to 12.5%. Although the interest will increase by 2.5%, the repayment period will be shortened, which means less interest accrued over time. Those with higher degrees, however, will end up paying more in the long run.
Universities will be pressured to reduce tuition fees and pass savings on to students. With the tuition fee reductions, students won’t need to take out so many loans, and more students will have the opportunity to enroll in higher education without the financial stress.
Universities will also be required to spend all student grants. With an increase in the amount of money offered to students through universities, administrations will be forced to present well-defined requirements for students eligible for these endowments.
The disadvantages of the DeVos proposal
The plan proposed by DeVos and Trump reduces the amount of funding for Perkins loans and the number of work-study programs, which are both important programs for below-middle-class students or those who continue their education without family help.
Perkins Funding provides students with loans at a low interest rate of 5 percent, which are made up of government money and a university share. The grace period for Perkins loans is nine months, and individuals have up to 10 years to repay them.
Work-study programs allow less fortunate students to follow the same training that many other students have the privilege of acquiring. It adds the stress of a job to academic course loads, but ultimately encourages discipline in students who will transfer to public service jobs in the future.
Additionally, students will have the flexibility to consolidate multiple federal loans into one loan, resulting in one-time monthly payments rather than multiple small payments, a financially mixed decision. Unfortunately, loan consolidation will increase the amount of time it takes to repay the loans, potentially causing graduates to pay more interest and lose some of the interest rate reductions that some borrowers have to offer.
Why do you care?
When I first heard about the new budget proposal, I was stressed because I am a final year college student planning to graduate a month before the budget goes into effect. . As a result, I will be among the thousands of students who experience the first wave of this huge shift in loan repayments that could affect our postgraduate finances. In the first year, I applied for quite a few loans because, like many students in this country, I do not receive family support to pay for my university.
When I took out the loans, I did so knowing the current student loan forgiveness program; I planned my post-graduation life around the availability of SLFP. Now that the Trump administration is ready to pull it from under my feet, I find myself scrambling to find another option, or I will be forced to accept its new plan and hope it works. (We all know that Trump balance sheet with higher education funding institutions so my expectations are low.)
Ultimately, my question will always be: why am I being punished for 1) graduating with a graduate degree and 2) borrowing money to finance that financially difficult, but necessary, degree just to live in debt for the rest of my life ? Thriving in this country requires higher education, but fails to put in place programs that make this necessity accessible to the 47 percent families who need help paying for their college education. When applying for loans in the next fall semester, keep in mind the plan you could sign if Trump and DeVos’ budget cuts for education become official.