Student loan borrowers should brace themselves for Trump’s budget

The news is particularly grim for graduate students.

Education Secretary Betsy DeVos waiting for President Donald Trump to arrive to sign various bills in the Roosevelt Room of the White House, in Washington. CREDIT: AP/Andrew Harnik
Education Secretary Betsy DeVos waiting for President Donald Trump to arrive to sign various bills in the Roosevelt Room of the White House, in Washington. CREDIT: AP/Andrew Harnik

The White House budget released on Tuesday proposes saving over $1 billion by getting rid of the subsidized student loan program, which pays the interest on loans while students are in college — a move that could be especially disastrous for low-income students who rely on the program.

The elimination of the program would add thousands of dollars to the cost of attending college. Undergraduate students can borrow up to $23,000 during four years of college, and the interest rate for undergraduates is currently set at 3.76 percent.

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As with many areas of President Donald Trump’s budget, the decision to get rid of the subsidized student loan program would appear to contradict the promises he made during his campaign. Last year, Trump said in reference to student loans, “This debt should not be an albatross around their necks for the rest of their lives. It’s not fair and we are going to fix it!”

Forty-four million Americans have student loan debt and total student loan debt has reached nearly $1.3 trillion. Last year, 1.1 million more borrowers went into default or re-entered default on their student loans, and there was a 14 percent increase from the year before in the number of defaults from people who had not made a payment in at least nine months.

Trump’s budget also proposes to eliminate the Public Service Loan Forgiveness program, which encourages students to work for the government and nonprofits and forgives debt after about a decade, or 120 qualifying payments. It would save $859 million.

The budget would also consolidate five income-driven repayment plans into one. Undergraduate students who used to have the ability to pay 10 percent of income for 20 years would pay 12.5 percent but over 15 years. For students with advanced degrees, they would no longer pay over 25 years but over 30 years. They would pay a higher percentage of their income over a longer period of time.

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These changes could exacerbate an already challenging environment for borrowers. Student loan servicers, companies that have contracts with the federal government to manage loan repayments, often fail to look out for the best interest of borrowers by making major errors or failing to communicate effectively with borrowers. But Education Secretary Betsy DeVos rescinded guidance that was meant to improve service for borrowers and provide some accountability to student loan servicers.

The Department of Education announced last week that only one company would collect student debt instead of nine contractors to save $130 million in the first five years of the contract, which would also change students’ interactions with their student loan servicer. As part of that contract, the department would get rid of mandates that help ensure borrowers are enrolled in income-driven repayment plans, such as reminding borrowers to enroll in those plans before the deadline, according to The Washington Post.

Maggie Thompson, the executive director of Generation Progress at the Center for American Progress, told ThinkProgress the proposed budget would be a disaster for low-income borrowers.*

“It increases the monthly payments for the most financially vulnerable borrowers who can currently enroll in programs like Pay As You Earn, while also eliminating Public Service Loan Forgiveness, the most generous of any loan forgiveness programs offered by the Department,” Thompson said in a statement. “Even more, the DeVos Department of Education has also rolled back requirements for student loan servicers to help borrowers enroll in these programs, which will make it all the more difficult for borrowers to take advantage of income-driven repayment regardless of the terms of the program they want to enroll in.”

*ThinkProgress is an editorially independent news site housed at the Center for American Progress.