Earlier this week, President Donald Trump submitted his budget proposal for fiscal year 2019. Much like the GOP's recently introduced PROSPER Act, the budget significantly affects borrowers who have federal student loans. Specifically, the proposed budget would get rid of the Public Service Loan Forgiveness (PSLF) program, as well as significantly change income-driven repayment (IDR) plans.
The PSLF program was initially passed by a Democrat-controlled Congress and signed into law in 2007 by President George W. Bush. It promised loan discharges to borrowers who are employed full-time—more than 30 hours each week—in an eligible federal, state, or local public service job or 501(c)(3) non-profit job, and who make 120 eligible on-time payments. (Learn more about PSLF and other student loan cancellation programs.)
With an income-driven repayment plan, your monthly student loan payment is set at an amount that is, supposedly, affordable based on your income and family size.
Currently, the four income-driven repayment plans for federal student loans are:
(To get details about each of these plans, see Student Loan Repayment Plans.)
Here's how PSLF and IDR could change under either the proposed budget or the PROSPER Act .
Trump’s budget proposal and the PROSPER Act both call for an end to PSLF. With both the proposed budget and the PROSPER Act, it’s likely that participants in the current PSLF program would be grandfathered in, which would allow them to qualify for forgiveness, if eligible. But loan forgiveness wouldn’t be available to new borrowers.
The three major proposed changes to IDR include slashing the number of available plans, changing how forgiveness works, and adjusting how much borrowers have to pay each month.
Reduction in the number of IDR plans. Both the proposed budget and the PROSPER Act propose reducing income-based repayment options down to one plan. In addition, Trump’s budget proposal calls for automatically enrolling borrowers in the IDR plan if they’re behind in payments.
Under the PROSPER Act, loan forgiveness is scrapped. Trump’s proposed budget recommends loan forgiveness after 15 years for undergraduate loans or after 30 years for graduate debt. This proposal is different from the current system that forgives loans after either 20 or 25 years—and is very different from the PROSPER Act, which would do away with forgiveness altogether. Instead, under PROSPER, interest would be capped after 10 years of payments.
Monthly payment amount adjustments. The Trump budget proposes requiring borrowers to make payments of 12.5% of their monthly income under the new IDR plan. Under the PROSPER Act, the monthly payment amount is 15% of a borrower’s monthly income.
Ultimately, the president’s budget proposal is just that—a proposal. After the budget gets to Congress, any number of changes can and likely will happen. The same is true of the PROPER Act, which might not be passed or could change significantly before becoming law. Still, both the budget and PROSPER are worth keeping tabs on as it’s likely that the federal student loan program will change at some point in the near future.
Effective date: February 13, 2018