Donald Trump's first draft budget has been released. It includes sweeping cuts to many government programs. One of the targets has been student loan payment plans and Public Service Loan Forgiveness. These plans have been vital to young professionals who have been trying to balance paying for living expenses while trying to get out of hefty student loan debt.
Payment Plans
The standard payment plan for student loan borrowers is a 10-year payback plan. With tuition costs rising much faster than starting salaries, this is a large burden for those early in their career. To provide more flexible payment options, the government created 3 main payment plans: Pay As You Earn (PAYE), Income-Based Repayment (IBR), and Revised Pay As You Earn (REPAYE). I will cover all of the specific terms and conditions around each of them in another post, because it ends up being quite a mouthful. In summary, the changes to the traditional 3 plans would be:
| IBR | PAYE | REPAYE | Trump Plan | |
| Monthly Payment | 15% of Discretionary Income | 10% of Discretionary Income | 10% of Discretionary Income | 12.5% of Discretionary Income |
| Qualifies for PSLF | Yes | Yes | Yes | No |
| Taxable Loan Forgiveness - Undergraduate Degree | 25 Years | 20 Years | 20 Years | 15 Years |
| Taxable Loan Forgiveness - Graduate Degree | 25 Years | 20 Years | 25 Years | 30 Years |
The biggest impact would be an increase in payment % compared to PAYE and REPAYE, as well as a 5 to 10 year increase on the payment term for graduate students.
What is Public Service Loan Forgiveness Anyway?
Public Service Loan Forgiveness (or PSLF for short) was enacted in 2007 by George W Bush to aid new graduates who had been current on their qualified loan payments for 10 years. Under that plan, the government would essentially wipe out the debt of any borrowers who had been making their payments and worked in a public service or non-profit job. As of today, it is estimated that half a million borrowers are currently scheduled to receive loan forgiveness under the program. The program had allowed students to go into jobs that would benefit society. Many young physicians have been looking at the program as a light at the end of the tunnel to help them find a way out of $200,000+ of medical school loans.
It has been rumored that changes would be coming to the program over the past few years. Some feel taxpayers shouldn't be subsidizing physicians and attorneys seeking pricey graduate degrees. Others feel it is critical to help those students seeking to go into public service. The estimated tax savings of eliminating the program would be $27 billion over the next 10 years, which will likely trigger a change of some sort to the program. This seems substantial, but put in the context of $1.5 trillion of total United States student loan debt is relatively small. With rising education costs, this could add even greater pressure to young physicians seeking to work for the public.
Uncertainty still surrounds the federal budget and how implementation be handled. The bill will have to make its way through Congress before anything is final. So far, education officials have stated the budget plan will only impact borrowers taking out student loans on our after July 1, 2018. So if you are currently eligible, keep making those loan payments. We will be following this situation closely and will provide updates in future blog posts.