Politics is way, way outside the scope of this blog. But now that the 2016 Presidential Election is behind us, I wanted to quickly highlight some significant changes that President-Elect Trump proposed during the campaign regarding student loans.
Student loan repayment plans are one of our primary focuses at Pacesetter Planning. As such, I wanted to share an update on some of the changes possible in a Trump administration.
A New Income Based Repayment Plan?
Currently, borrowers who have federal loans are automatically put on a standard 10-year repayment plan after graduating. However, there are several alternative payment plans that allow borrowers to adjust their payment term and monthly payment amount based on the borrower’s income.
I won’t rehash all the details regarding who qualifies for which plan here since I outline each of these options in detail in my FREE eBook, “13 Things to Do Before You Make Your Next Student Loan Payment”. Subscribe to our newsletter here and I’ll send you a free copy today!
Mr. Trump proposed a new version of these income based repayment plans in a policy speech in October. Essentially, the president-elect argued to allow borrowers to cap payments on federal loans at 12.5% of their monthly income. Even more, Mr. Trump proposes to forgive all debt for borrowers making these capped payments after fifteen years.
To repeat, payments capped at 12.5% of income, and forgiveness for any remaining federal loan debt after 15 years.
Comparison to Current Policy
It’s a mixed bag, but overall, this proposal compares very favorably to the existing options. While some of the current plans are limited based on your income level and when you borrowed the loans (again, download my eBook for more details), generally speaking the existing policies allow borrowers to do one of two things:
- Cap borrowers’ payments at 10% of monthly income, and offer forgiveness after 20 years, or
- Cap borrowers’ payments at 15% of monthly income, and offer forgiveness after 25 years
How does President-Elect Trump’s proposal compare? Partially, it depends on your strategy around student loan payment. For borrowers who want to minimize their monthly payment at all costs, one of the existing income repayment plans will probably be a better deal for you, since they cap payments at 10% of monthly income rather than 12.5%. But, for people looking to earn loan forgiveness, Mr. Trump’s plan could be a huge bargain.
Cutting the forgiveness window from 20 or 25 years down to 15 years is a big deal for borrowers. By slightly increasing the monthly payment amount but reducing the payment timeframe by five or ten years, many borrowers will be able to save thousands of dollars in repayment costs over the life of their loans.
Of course, none of this is official policy yet. As such, there are still many things we don’t know about this proposal.
- Will the proposal apply to all borrowers? Some of the current income repayment plans allow for individuals regardless of income level to sign up. But many others restrict eligibility to only those who either have a low income level, high loan balances, or both. We don’t yet know how wide-reaching Mr. Trump’s proposal would be if it goes into effect.
- Will the proposal only affect newly-issued loans? Or, to put it another way, will this proposal only apply to loans borrowed after it goes into effect? Trump has not offered details yet on whether or not borrowers who are currently in the process of repaying federal loans would be eligible for the 12.5% monthly income payment cap and 15-year loan forgiveness.
- Will the proposal actually go into effect? As we all know, and we certainly don’t have to rehash here, President-Elect Trump campaigned on many issues with more passion than he did regarding student loans. Will this be a high priority item for him?
- If so, will the plan need congressional approval? In the past, President Obama issued changes to student loan repayment terms without needing to go through Congress. Will the future President Trump seek to do the same?
We will provide updates on President-Elect Trump’s student loan plans throughout the course of his administration. But, in the wake of a divisive national election, I wanted to quickly highlight this important proposal and its potential benefits to hundreds of thousands of student loan borrowers across the country.
To learn more about how to implement your own student loan repayment strategy, click here to download a free copy of my eBook, “13 Things to Do Before You Make Your Next Student Loan Payment”.