A lot of people who went to grad school, or who are at least thinking about it, are going to be extremely unhappy if not outright panicked when the Trump administration releases its first detailed budget next week.
As part of its plan to slash the Department of Education’s budget by some $10.6 billion, the Washington Post reports that the White House will propose ending the federal student loan forgiveness program for public sector and nonprofit workers, and lengthen the amount of time Americans will have to spend repaying their debts on income-based plans if they borrowed to get an advanced degree.
Under the Public Service Loan Forgiveness Program, which the administration’s budget would reportedly kill off, student borrowers can currently have their debts erased if they spend 10 years working for a government or nonprofit employer. The program was created in 2007 in order to encourage more Americans to go into public service, but has become more controversial as some have criticized it as a back-door subsidy for expensive graduate degrees—the people who have signed up for so far tend to have high loan balances more typical of someone who went on to get a master’s or a J.D. rather than a mere bachelor’s. In 2015, the Obama administration proposed capping the amount of debt that could be forgiven at the federal loan limit for undergraduates, or $57,500. But Trump and his education secretary Betsy DeVos would go a step further by eliminating it entirely. As the Post notes, it is unclear what that would mean for borrowers currently working their way toward forgiveness.
The White House also reportedly wants to make some major changes to the Department of Education’s income-based repayment options, which cap monthly payments as a percentage of a borrower’s income. The tweaks would essentially help undergraduate borrowers at the expense of graduate students.
Under the current version of income-based repayment, borrowers are expected to pay 10 percent of their disposable income toward their loan balance, which is forgiven after 20 years for people who borrowed for a bachelor’s degree, or 25 years for those who borrowed for an advanced degree. Under Trump’s plan, borrowers would pay 12.5 percent of their income for 15 years if they borrowed for undergrad or for 30 years if they borrowed for grad school.
Now, a disclosure: As Henry Blodget would say, I am conflicted out the wazoo on this topic. My wife is New York City prosecutor who borrowed heavily for law school and is essentially relying on the Public Service Loan Forgiveness Program to retire her debt. Without it, we’ll be paying her loans for an additional 15 years, at least. I absolutely have a personal financial stake in the…