President Trump sent Congress his fiscal year 2020-21 federal student loan budget proposals on Monday. As written, they would profoundly change these loans, on which approximately two-thirds of postsecondary students rely. Here’s how . . .
• Undergraduate Loans: Subsidized Loans would be eliminated, so every dollar borrowed by financially needy undergraduates would come from Unsubsidized Loans. Unlike their subsidized counterparts, Unsubsidized Loans charge interest while undergraduates are enrolled and during their 6-month post-enrollment grace periods. At that point, they merge unpaid interest with loan principal and interest starts getting charged on interest. This would cause the average undergraduate pay up to $103 more for every $100 borrowed.
• Graduate Student Loans: Unsubsidized Loans would stop for graduate students, leaving Graduate PLUS Loans as their only federal borrowing option. Graduate PLUS Loans have 1% higher interest rates than Unsubsidized Loans. Graduate PLUS Loans would also be capped for the first time ever — at $50,000 (annually) and $100,000 (lifetime). At today’s rates, all this would increase graduate loan costs by up to $42 per $100 borrowed.
• Parent Loans: The budget would impose a $26,500 lifetime limit on Parent PLUS Loans. Once this limit’s reached, the child’s lifetime limit on Unsubsidized Loans would almost double, from $31,000 to $57,500.
• Loan Repayment: Today, student borrowers may choose from up to 8 different repayment plans, 5 of which base monthly payment amounts on borrower income. The budget would replace all 5 income-driven plans with a Single Income-Based Repayment (SIBR) plan. SIBR would require monthly payments equaling 12.5% of what the borrower (and the borrower’s spouse, even if the couple doesn’t file a joint tax return) earn. SIBR would also eliminate the current cap income-driven monthly payments, so those with relatively high incomes would pay more each month.
• Public Service Loan Forgiveness (PSLF): There’d be no PSLF for new borrowers on and after July 1, 2021. Those who borrow before that date would be PSLF-eligible, but only for loans they get to complete their “current course of study.”
• Other Loan Forgiveness: Under SIBR, those who borrow only as undergraduates would have whatever they might still owe after 15 years forgiven. Those who borrow $1 or more as graduate students would qualify for forgiveness of whatever debt might remain after 30 years of SIBR payments, so they’d wait 5 to 10 more years for forgiveness than they do under current income-driven repayment plans.
• Institutional Loan Counseling and Limits: Financial aid administrators would be empowered to limit borrowers to loan amounts below those allowed by federal law, and schools could prohibit students from using their federal loan funds to pay college costs until they complete financial literacy training.
• Overall Impact: More expensive loans; fewer and costlier repayment options; less debt forgiveness; new obstacles to borrowing — this sums up the Trump budget proposals for federal student loans.
You can and should communicate your opinions about these proposals to your U.S. Senators and Representative by email or phone. Look here to find your Senators’ contact information and here to get such information for your Representative.
Next Wednesday — the Trump budget proposals for federal grants and work-study.
Are you concerned about your student loan debt? Looking for some answers? Contact College Affordability Solutions at (512) 366-5354 or firstname.lastname@example.org for a consultation. We never charge future, current, or ex-students and their parents for consultations.