President Donald J. Trump and former Vice President Joe Biden have made different proposals concerning student loans. Key differences will affect income-driven repayment, public service loan forgiveness, widespread student loan forgiveness, student loan discharge (including bankruptcy discharge), the elimination of subsidized Federal Direct Stafford Loans, and lower loan limits for Grad PLUS and Parent PLUS loans.
Pay-As-You-Earn Repayment (PAYE), which was enacted during the Obama-Biden administration, has the lowest monthly payment and lowest total payments of any of the current income-driven repayment plans. The monthly payment is 10% of discretionary income, which is defined as the amount by which adjusted gross income (AGI) exceeds 150% of the poverty line. The repayment term is 20 years for both undergraduate and graduate students. The loan forgiveness at the end of the 20-year repayment term is taxable under current law. There is a standard repayment cap on the monthly loan payments and there is no marriage penalty for married borrowers who file separate federal income tax returns.
Donald Trump has proposed combining all of the current income-driven repayment plans into a single repayment plan. During the 2016 campaign, he proposed creating a new income-driven repayment plan:
- The monthly student loan payment would be based on 12.5% of discretionary income.
- The repayment term would be 15 years for undergraduate students and 30 years for borrowers with any graduate student debt.
- The proposal did not specify whether the loan forgiveness at the end of the repayment term would be taxable.
- The repayment plan would have no cap on the monthly payments so the payments could increase without bound as income increased.
- The repayment plan has a marriage penalty, basing the loan payment for married borrowers on joint income regardless of the tax filing status.
Overall, Trump’s proposal would keep costs about the same for undergraduate student borrowers but nearly double costs for graduate student borrowers, as compared with PAYE.
Joe Biden proposes a new income-driven repayment plan which will cut the monthly loan payments in half as compared with PAYE.
- The monthly student loan payment would be based on 5% of discretionary income, which would be the amount by which AGI exceeds $25,000.
- The repayment term would be 20 years for undergraduate and graduate students.
- The forgiveness of the remaining loan balance after 20 years in repayment would be tax-free.
- The repayment plan does not specify whether there is a cap on the monthly payments or a marriage penalty.
Public Service Loan Forgiveness
Donald Trump has proposed repealing the Public Service Loan Forgiveness (PSLF) program every year in his federal budget.
Joe Biden has proposed switching PSLF from a back-end loan forgiveness program, where the remaining debt is forgiven after 10 years of payments (120 payments), to an up-front loan forgiveness program, where $10,000 of federal student loan debt is forgiven each year for up to five years.
Widespread Student Loan Forgiveness
Donald Trump has proposed $25 billion of loan forgiveness as part of the next stimulus bill. This would forgive 1.6% of the $1.54 trillion in federal student loan debt outstanding. He has not specified who would be eligible for the loan forgiveness.
Joe Biden proposes to forgive all tuition-related undergraduate federal student loan debt for borrowers who attended public colleges or HBCUs and who earn less than $125,000 per year. Joe Biden has also said that he supports the $10,000 in federal student loan forgiveness proposal introduced by House Democrats.
Student Loan Discharge
Joe Biden proposes to restore bankruptcy discharge rights to student loans. Donald Trump does not.
Donald Trump’s administration has delayed implementation of the defense to repayment discharge and has also issued regulations to provide partial discharge instead of full discharge. The expansion of the defense to repayment was implemented by the Obama-Biden administration.
Donald Trump’s administration also issued new regulations to limit closed school discharges.
Donald Trump’s administration repealed the gainful employment rule. During the Obama-Biden administration, the gainful employment rule established debt-to-income restrictions on for-profit colleges based on whether their students graduated with a reasonable amount of debt as compared with their income after graduation.
As part of the Tax Cuts and Jobs Act of 2017, Donald Trump proposed tax-free forgiveness of death and disability discharges of federal and private student loans. These changes are effective from 2018 through 2025, inclusive.
Subsidized Federal Direct Stafford Loans
Donald Trump proposed eliminating subsidized Federal Direct Stafford Loans as part of the 2021 federal budget proposal. Borrowers would still be able to borrow the same about of Federal Direct Stafford Loans, but they would be entirely unsubsidized.
Joe Biden has not issued any proposals concerning subsidized Federal Direct Stafford Loans. Congress eliminated subsidized Federal Direct Stafford Loans to graduate students during the Obama-Biden administration.
Federal Student Loan Limits
Donald Trump has proposed setting specific annual and aggregate loan limits for the Federal Grad PLUS and Parent PLUS Loans. Currently, borrowers of Federal Direct PLUS Loan can borrow up to the college’s full cost of attendance minus other aid received. There is no aggregate limit in the PLUS Loan program.
Joe Biden has not proposed any changes in loan limits in the Federal student loan programs.
Previous Student Loan Changes
Donald Trump proposed and the CARES Act implemented a payment pause and interest waiver on federal student loans held by the U.S. Department of Education. This payment pause and interest waiver was set to expire on September 30, 2020, but was extended by the Trump administration through December 31, 2020.
The SECURE Act, which was enacted during the Trump administration, allows qualified distributions from 529 college savings plans to repay up to $10,000 in federal and private student loans. This is a lifetime limit per borrower.
There were several changes to student loans during the Obama-Biden administration.
- The Obama-Biden administration changed the definition of an adverse credit history, making it more difficult for borrowers to qualify for Federal Direct PLUS Loans.
- Congress changed the interest rate formulas for federal student loans. Also, sequestration increased the fees on federal student loans slightly.
- Congress created the office of the private student loan ombudsman as part of the Consumer Financial Protection Bureau (CFPB) in 2011.
- The Federal Family Education Loan Program (FFELP) was replaced with 100% Direct Lending in 2010.
Total student loan debt outstanding exceeded credit card debt in 2010, auto loans in 2011 and hit the $1 trillion mark in 2012. Today, total student loan debt outstanding is nearly $1.7 trillion.
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