If President-elect Donald Trump implements his proposed student loan plan, there may be good news on the horizon for millions of student loan borrowers.
On October 13, 2016, Trump proposed an income-based repayment plan that allows borrowers to cap their monthly student loan payments based on their income and then have their student loans forgiven after a certain period of time.
Under Trump’s plan, if you are a student loan borrower, your monthly student loan payments would be capped at 12.5% of your income. After 15 years of monthly payments, your remaining student loan debt would be forgiven.
“Students should not be asked to pay more on the debt than they can afford,” Trump said. “And the debt should not be an albatross around their necks for the rest of their lives.”
Student Loan Repayment: The Status Quo
Today, the standard federal government student loan repayment period is 10 years. For those borrowers who cannot afford their monthly student loan payments, the federal government created income-driven repayment plans to help make student loan repayments more affordable than the standard 10-year plan.
Under the Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) income-driven repayment plans, you pay 10% of your discretionary income each month towards your federal undergraduate student loans for 20 years, at which point any remaining balance on your federal undergraduate student loan is forgiven. Under REPAYE, if you have graduate school student loan debt, the repayment period is 25 years before your remaining student loan debt is forgiven.
Trump said he would combine the existing repayment plans into a single plan to make it less confusing for borrowers. While Trump’s proposal raises the monthly payment cap from 10% to 12.5% of income, his proposal raises the remaining student loan balance 5-10 years sooner than the current income-driven repayment plans. He plans to pay for his student loan plan by reducing federal spending.
The Fate of Public Service Loan Forgiveness
The federal government currently provides student loan forgiveness for public servants and teachers who meet certain qualifications, including a requisite number of monthly student loan payments. Public services, for example, can have 100% of their student loans forgiven after 120 eligible on-time monthly payments.
If Congress were to eliminate Public Service Loan Forgiveness (and place all borrowers into a single income-based repayment plan, for example, existing borrowers likely would be grandfathered in, since they borrowed with the expectation of entering public service and qualifying for loan forgiveness.
Top 5 Questions and Answers
Given Trump’s student loan proposal, what is the impact to you as a student loan borrower and what action steps can you take now?
Here are 5 questions and answers:
1.Will I save more money on my student loans under Trump’s plan compared with the current income-driven repayment plans? All else equal, Trump’s current proposal for borrowers to pay 12.5% of income for 15 years, if elected into law, should save you more money than the current federal government repayment programs (PAYE and REPAYE), which require 10% of discretionary income per year for 20-25 years.
2.How do I apply for student loan forgiveness? You don’t have to wait for Trump’s student loan plan to be implemented to apply for student loan forgiveness. You can sign up for the current plans through Western Benefits Group. Give us a call, (800) 287-1615, or visit us at www.westernbenefitsgroup.com.
3. Does student loan forgiveness under Trump’s plan mean I will not owe any more money after my student loan is forgiven? Trump has yet to indicate whether he supports taxes on student loan forgiveness.
4.Will Trump’s plan lower my monthly student loan payment? Trump believes that the federal government should not profit on student loans, but has not indicated whether the current interest rate for student loans will be lowered. However, you don’t have to wait for Trump’s student loan plan to take effect to get a lower interest rate on your student loans. Contact WBG to find out which programs you are eligible for. (800) 287-1615, or visit us at www.westernbenefitsgroup.com.
5. What are the benefits and risks to income-driven repayment plans? There are benefits and risks to income-driven repayment plans. The benefits: you save money upfront from lowering your monthly student loan payment or extending the repayment period. The risk: you will pay more interest over time because lower monthly payments means you are reducing less principal each month. You also may be required to pay ordinary income tax on the loan amount forgiven.