The Future of the Public Service Loan Forgiveness Program

    President Trump’s latest budget proposal to Congress calls, once again, for the elimination of the Public Service Loan Forgiveness (PSLF) program.

    This is the second time Trump has recommended eliminating the program that promised to forgive the balance on student loans after 10 years of on-time payments and service in approved government and charity organizations.

    The February budget proposal comes on the heels of the startling news that many in the first group of people qualified for loan forgiveness under the PSLF program, were being denied.

    CNN Money reported that the Department of Education expects fewer than 1,000 borrowers to have the balance of their student loans forgiven in their first year of eligibility, despite about 7,500 applicants.

    The blame was put on loan servicers, who may have provided misinformation about borrowers’ qualifications. There have been lawsuits filed against the loan servicers and the Department of Education.

    Part of the issue is that PSLF is only good for Direct Federal loans. At the time that the program started, most of the loans issued were Federal Family Education Loans (FFEL). Only about a quarter were Direct Federal loans. Another problem was the limited amount of qualifying repayment plans.

    In July of 2010, the government quit offering FFEL loans and now provides four types of qualifying income-based repayment options.

    The Future of the PSLF Program Is Uncertain

    President Trump has proposed ending PSLF in both of his budget proposals, first in March 2017 and again in February 2018. The latest proposal states the program would end for new borrowers after July 2018, but no legislation has passed to make that official.

    If it does pass, borrowers already enrolled in the program should have nothing to worry about. The change would only stop new borrowers from signing up for the program, which started in 2007 under President George W. Bush.

    It should also be noted that the presidential budget is essentially meaningless. It exists to identify and recommend the president’s priorities to Congress, and it is Congress that passes the official budget.

    President Trump’s Education Proposals

    These proposed changes wouldn’t go into effect until July 2019, and ending subsidized loans won’t get much support from Congress. That being said, consolidating the income-based repayment plans could be a possibility.

    Under President Trump’s plan, graduates’ monthly payments would be capped at 12.5 percent of their discretionary income, and their outstanding balance would be forgiven after 15 years (this applies to undergraduate loans only).

    Discretionary income is the money left over after paying for necessities like rent, utilities and food. The government calculates it as your gross income (after taxes) and 150% of the poverty guideline. Currently 150% of the poverty line for a one-person household is $18,090.

    Under the current repayment plans, monthly payments are generally capped at 10% of discretionary income, but debt is forgiven after 20 or 25 years.

    A study from NerdWallet found that borrowers would actually pay less under President Trump’s plan than the income-based REPAYE plan. Though, REPAYE would forgive a larger dollar amount.

    As a comparison:

    President Trump’s plan

    • Debt forgiven after 15 years
    • Higher monthly payment
    • Pay a smaller total dollar amount
    • Less debt forgiven

    REPAYE:

    • Debt forgiven after 20-25 years
    • Lower monthly payment
    • Pay more in total
    • More debt forgiven

    According to NerdWallet’s calculation, in order to have debt forgiven on $30,100 in loans – average loan debt of the 2015 graduating class – (for both plans) the borrower would need to average under $30k/year in income for 15 years.

    Both plans appeal to high-volume borrowers with low income, and there are over 3.3 million borrowers that owe over $75k in student loans.

    Again, none of this has been made official yet, but keep an eye out in the news if any changes are made to student loans.

    How to Qualify for Public Service Loan Forgiveness:

    • Make sure your job is eligible (local, state or federal government organization, 501 (c)3 non-profit, or other not-for-profit organizations that meet requirements)
    • Only Direct Federal loans qualify. If you have FFEL loans, you need to consolidate them through the Direct Loan program. However, the 120-payment countdown will restart.
    • Enroll in one of the four income-based repayment plans
    • Recertify your income and family size each year
    • Make 120 consecutive payments
    • Fill out and submit this form

    The first wave of applicants had their issues because the rules were not clearly stated when the program was instituted. But as time went on, borrowers should have been better informed and order should be restored.

    Author

    Max Fay
    Staff Writer

    Max Fay is an entrepreneurial Millennial whose thoughtful writing shows he has a keen eye on both. Max has a genetic predisposition to being tight with his money and free with financial advice. At 25, he not only knows what an “emergency fund” is, he already has one. He wrote high school and college sports for every major newspaper in Florida while working his way through Florida State University. That experience was motivation to find another way to succeed financially and he has at Debt.org. Max can be reached at mfay@debt.org.

    In debt? We can help!

    • Amount
    • Type
    • Contact

    How much do you owe?

    What can we help you with today?

    Related Articles

    Disabled veteran in a wheelchair

    President Trump Signs Order to Erase Student Loan Debt for Disabled Veterans

    Lawmakers, economists and activist all have made headlines debating solutions to the $1.6 trillion student debt crisis burdening the lives of 44 million Americans.Some plans go as far as to cancel every cent of student loan debt, while others recommend ...

    Continue Reading
    Elizabeth Warren giving a speech

    Democratic Presidential Candidates Plan to End Student Debt Crisis

    It’s impossible not to notice that student loan debt has emerged as a big issue in the campaigns for the 2020 Democratic Party presidential nominations.Massachusetts Sen. Elizabeth Warren brought it to the forefront in the spring of 2019 when she ...

    Continue Reading
    Caution on Student Loan Forgiveness Programs

    Confusion Clouds Future of Student Loan Forgiveness Programs

    Here’s a warning for anyone who must borrow money for college. There’s an assault under way on the most cost-effective and popular student-loan repayment programs.Lines are being drawn and people are choosing sides. The ability for borrowers to ...

    Continue Reading
    FAFSA Benefits Students

    Changes to FAFSA Benefits Students

    You’re a college student, and life feels grand. You have your classes picked out for next semester, and you’ve signed a lease through next year. Everything is falling into place. The last thing on your mind is filling out the Free Application for Federal ...

    Continue Reading
    College Graduate Budget Computer

    College Graduates Should Budget (And Save!) Right Away

    When Ryan Dwyer received his undergraduate history degree from the University of South Florida in 2016, he felt a sense of accomplishment. His hard work had paid off with society’s definition of the ticket to a brighter future.But the degree has simply ...

    Continue Reading
    How well are students keeping up with their student loans?

    Who’s Paying For Student Loans

    Now that the college graduation parties are over, parents and students can sit down and have a serious talk about who's going to pay for it.College, that is, not the parties.The cost of college and how families are paying for it, has dimmed the ...

    Continue Reading
    Millennial holding a sign that declares their love for loan repayment plan

    Student Loan Repayment A Benefit Millennials Love

    Companies have a new carrot to dangle in front of college graduates – help repaying student loans – and experts believe it quickly will become the gold standard benefit for the next crop of college graduates.“Getting help repaying student loan debt ...

    Continue Reading
    Graduation with many happy students

    Attention 2015 college graduates: You just started a six-month grace period. Most of you, anyway.

    There are approximately 2.8 million college graduates this year and 75 percent of them – 2.1 million people – borrowed an average of $35,000 to pay for that diploma.That is the highest debt load ever and takes some of shine off the celebration, which ...

    Continue Reading
    Get Help Now

    Overwhelmed with debt? You have options for lower monthly payments!

    x