"I don't have anything good to say about this," a leading expert told me.
Image by Lia Kantrowitz.
When Donald Trump was on the campaign trail, believe it or not, people with student debt had reason to believe he would make their lives less of a confusing nightmare. Back then, he argued for simplifying the government's dizzying array of repayment programs. But when he got into the White House, it became obvious that part of this simplification process was deregulation—and that is a different, and scarier, prospect for debtors.
In March, Trump eliminated a Obama-era protection that prevented collection companies from charging huge fines to people who defaulted on their payments––which is another way of saying from cruelly kicking people when they're already down. But that was just a prelude: Now that the administration's 2018 budget proposal is out, we can see in plain language what Trump plans to do about student loans. (There's basically no chance that the full proposal will be passed by Congress, but it does demonstrate what the administration wants to do.) I went through the short but dense section on the topic with Allan Collinge, an activist who knows more about it than possibly anyone else in the country.
"I don't have anything good to say," he told me. "This is like rearranging the deck chairs on the Titanic before it sinks."
Here's the rundown of the relevant text of the budget proposal and what it could mean for you:
The proposal says: In recent years, income-driven repayment (IDR) plans, which offer student borrowers the option of making affordable monthly payments based on factors such as income and family size, have grown in popularity. However, the numerous IDR plans currently offered to borrowers overly complicate choosing and enrolling in the right plan. The Budget proposes to streamline student loan repayment by consolidating multiple IDR plans into a single plan.
This is basically what Trump said he would do when campaigning.
Proposal: The single IDR plan would cap a borrower's monthly payment at 12.5 percent of discretionary income.
"Most people––particularly recent graduates––already pay significantly less than that, so their payments will go up under this plan," Collinge said.
This current income-driven repayment plan is based on post-tax income. Discretionary income also takes into account expenditure on necessary items, like rent. It's unclear what metric the government will use to calculate cost of living for purposes of collecting on student loans.
Proposal: For undergraduate borrowers, any balance remaining after 15 years of repayment would be forgiven. For borrowers with any graduate debt, any balance remaining after 30 years of repayment would be forgiven.
Currently, if you make a certain number of on-time payments, the government will erase the balance of your debt. (You will be taxed on that amount as if it were income, but still.)
Before Barack Obama, the number of payments was 25 years' worth, though he reduced it to 20 years' worth. Trump is saying that he will change that number to 15 for people with undergraduate loans but actually increase it to 30 for people with debt from graduate school––a demarcation that has never existed. So this is good for you if you accrued debt as an undergraduate, but lousy if you racked up loans in grad school.
"[Thirty years] is the longest repayment term I've ever heard of," Collinge said.
Proposal: 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...
This is going to devastate a lot of people. This program, created under George W. Bush, erased student debt after ten years of on-time payments if the debtors went into government or nonprofit work. That meant 400,000 people would have their debts wiped clean this October—now there's uncertainty about whether they'll get that benefit or not.
Proposal: ...establishes reforms to guarantee that all borrowers in IDR pay an equitable share of their income, and eliminates subsidized loans.
"The government currently pays the interest on your loans when you're in school, and in deferment, and for six months after you graduate. You will be charged that interest under Trump's plan," Collinge said.
In other words, students entering college will end up paying more for the same education.
Proposal: 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. All student loan proposals apply to loans originated on or after July 1, 2018, except those provided to borrowers to finish their current course of study.
Anyone who's already graduated will not be affected by the above.
Proposal: The Budget also supports expanded access to Pell Grants for eligible recipients through YearRound Pell. This policy incentivizes students to complete their degrees faster, helping them reduce their loan debt and enter the workforce sooner. Year-Round Pell gives students the opportunity to earn a third semester of Pell Grant support during an academic year, boosting total Pell Grant aid by $1.5 billion in 2018 for approximately 900,000 students.
Although this seems like a great thing, that's probably only the case for school administrators rather than the students they serve. That's because colleges tend to spend all the money they get. If kids are getting more Pell Grants, universities will likely just increase the cost of tuition accordingly.
"From the students's perspective, it's basically a wash," Collinge told me.
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