Implemented in September 2007, the Public Service Loan Forgiveness (PSLF) will likely see its first batch of borrowers whose federal student loans were forgiven later this year. President Trump however plans to eliminate the program as part of his reforms to the government’s student loan programs.
The broad reform set forth on his federal budget for fiscal year 2018 also touches on income-driven repayment plans that were established by the College Cost Reduction and Access Act of 2007, the same law behind the PSLF.
“These reforms will reduce inefficiencies in the student loan program and focus assistance on needy undergraduate student borrowers instead of high-income, high-balance graduate borrowers,” his budget proposal read.
PSLF, IDR: A Quick Recap
The PSLF will forgive federal student loans of borrowers working in eligible public services and are making 120 qualifying payments on their current Direct Loans.
Under the program, applicants must be enrolled in any qualifying income-driven repayment plan, namely:
- Revised Pay As You Earn Repayment Plan (REPAYE)
- Pay As You Earn Repayment Plan (PAYE)
- Income-Based Repayment Plan (IBR)
- Income-Contingent Repayment Plan (ICR)
In his full budget proposal, Pres. Trump plans to make things right by, among other things, streamlining the government’s student loan programs. On his student loan reform agenda are the following:
1. Create single income-driven repayment plan
2. Eliminate subsidized student loans
3. Eliminate PSLF
4. Eliminate account maintenance fee payments to guaranty agencies
5. Support year-round Pell grants
6. Reallocate mandatory Pell funding to support year-round Pell grants
He recognized the popularity of the IDR plans, which offer an option to make student loan payments more affordable for borrowers. “However,” he noted, “the numerous IDR plans currently offered to borrowers overly complicate choosing and enrolling in the right plan.”
He thus wishes to streamline the IDR plans by creating a single income-driven repayment plan. Under this unified IDR plan, the borrower’s monthly payment will be capped at 12.5% of his/her discretionary income.
For undergraduate borrowers, balances remaining after making payments for 15 years will be forgiven. Graduate borrowers will have to make repayments for 30 years for any remaining balance to be forgiven.
This leads to the elimination of the PSLF.
“To support this streamlined pathway to debt relief for undergraduate borrowers, and to generate savings that help put the Nation on a more sustainable fiscal path, the Budget eliminates the Public Service Loan Forgiveness program, establishes reforms to guarantee that all borrowers in IDR pay an equitable share of their income, and eliminates subsidized loans,” read Pres. Trump’s proposal.
He also supports a year-round access to Pell Grants, which serve as an incentive for students to finish their degrees faster and thus enter the workforce sooner. This is evidenced by a $1.5 billion boost to the funding to support 900,000 students in 2018.
The proposed student loan reforms will apply to loans that are originated on or after 1 July 2018. Loans made to borrowers so they can finish their current studies will not be included.