Make Idr Student Loan Forgiveness Sooner For Undergraduate Loans
Along with the consolidation of the four IDR plans into one, student loan forgiveness Trump proposed wouldve happened sooner for undergraduate borrowers.
Undergrads would be eligible to receive student loan forgiveness after 15 years. This would speed up forgiveness by five years from current IDR plans.
American Opportunity Tax Credit Improved
The American Opportunity Tax Credit has been renewed by the Tax Cuts & Job Act. This is one of the major big deductions for student loans that allows up to a $2,500 deduction for fitted education costs for the first 4 years of higher education. The IRS reports show that 9m Americans used for this tax credit last year. The Tax Cuts & Jobs Act has raised the allowable deduction time to five years rather than four, except the fifth year is at a decreased $1,250 deduction. The deduction is measured as being 100% of the costs incurred up to the first $2,000, and then its 25% of the next $2,000 for a maximum of $2,500.
The Economic Argument For Canceling Student Debt
At the heart of the argument for canceling student debt, especially in the midst of the pandemic, is that it would be good for millions of people and, therefore, the economy. How good is where the disagreement resides and because mass student debt forgiveness isnt something weve seen in the past, the data on what could happen is relatively limited.
One 2019 working paper from Harvard Business School looked at what happened when students in default had their debt discharged because of a lawsuit. They found that borrowers reduced their overall indebtedness by a quarter and were also less likely to default on other accounts. Thats good for them and for the entities they owe money to.
We actually find that these individuals tend to lower their total liabilities over time by repaying, for instance, credit card debt, so their overall financial health improves, said Marco Di Maggio, an associate professor of business administration at Harvard and one of the papers authors.
People also demonstrated more mobility they moved states, changed jobs, and took more risks that often translated to higher incomes.
45 million Americans now owe a total of about $1.6 trillion in student loans
Di Maggios research focused on people who were in default and werent making payments at all. But if it were broader federal debt forgiveness that includes borrowers who are paying, he thinks the impact could be much greater.
But economic stimulus is not the only argument for wiping out debt.
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Forgive Graduate Student Loans Slower
There has been a growing trend to focus student loan forgiveness at the undergraduate level. Why? Borrowers with graduate school degrees have higher earning potential than borrowers with only an undergraduate education. As such, graduate school borrowers have the potential to earn relatively more money and pay off their student loans with lower default rates. Trump would provide student loan forgiveness for student borrowers with federal graduate school student loan debt. However, rather than the 25 years of student loan payments under existing income-driven repayment plans, you would need to make 30 years of monthly payments to receive student loan forgiveness. You would also likely be liable for income taxes on the amount of student loan forgiveness that you receive.
Cancellation Of Public Service Loan Forgiveness
Perhaps, the most surprising, as well as, upsetting nuance in the Trump student loans change plan, is the cancellation of PSLF. Considering the benefits of PSLF for a lot of people, I disagree with this change plan. On the other side, President Trump does not want to leave its place empty. The program of student loan forgiveness Trump proposes will benefit everybody involved.
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Ends Public Service Loan Forgiveness
The Trump budget continues the trend of congressional leaders and this administration calling for the end of the Public Service Loan Forgiveness . The program allows nonprofit workers and government employeesincluding teachers, public defenders, police officers, and firefightersto receive loan forgiveness after 10 years of payments. Borrowers only qualify for PSLF if they also use an income-driven repayment plan at some point.
Ending PSLF would put public servants on the hook for $45 billion in debt payments over 10 years.
Apply Immediately If You Are Eligible
As you are already familiar with the prospering opportunities, the first thing to do is check if you are eligible for any of these options. For example, if your school misled you, try to gather all evidence and develop a sound argumentation.
Besides these two programs, other forgiveness opportunities still exist, and they are more effective than ever. It is one of the best times to apply for debt forgiveness programs while the administration is in support of existing options. Before worrying about immediate forgiveness, which does not seem highly likely, try to explore your existing debt resolution strategies.
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Cancel Student Loan Debt
- There have been many proposals in Congress to cancel student loan debt.
- Trump does not support these plans to cancel student loan debt for all student loan borrowers.
- Similarly, U.S. Secretary of Education Betsy DeVos doesnt support widespread student loan debt cancellation.
- Could Trump cancel student loan debt? Its unlikely in a potential second term. However, theres always the potential for a policy change.
What You Can Do For Your Country Act
While Trump is angling to eliminate PSLF, Sens. Tim Kaine, D-Va., and Kirsten Gillibrand, D-N.Y., as well as other Democratic senators, are looking to improve the program.
Here are a few key highlights from the What You Can Do For Your Country Act that was proposed in April 2019.
- Forgive 50% of student loan balance at five years: This would be a huge change, as currently it takes 10 years to earn PSLF forgiveness. With this plan, borrowers could have half of their balance forgiven at the five-year mark.
- Count pay ahead payments toward PSLF: This would keep you from being penalized for trying to do the right thing and paying more than you have to.
- Count all types of federal student loan: Its unclear exactly what this would mean. But Democrats want Federal Family Education Loan Program Loans to qualify for PSLF.
- Eliminate the need for income certification: With this plan, every payment would qualify for PSLF. Therefore, there would be no need to annually certify your income.
- Allow self-certification of public service employment: If your employer refused to sign your certification form, you could certify your employment yourself.
- Make 30 hours a week the clear definition of full-time employment: Currently, full-time employment is considered to be 30 hours or whatever your employer considers full-time. With this change, your employers definition would no longer matter.
How does Kaine and Gillibrands proposal compare to Trumps?
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Why Is It Temporary
To bend the programs rules, the Education Department is invoking the HEROES Act of 2003, a federal law that allows the agency to waive certain rules during a national emergency. The department is tying its action to the pandemic, which has been declared a national emergency, but the department said it will lose that flexibility after October 2022.
Democrats applauded the move, while Republicans said the Biden administration is overstepping its authority. Republicans agree that the program needs to be improved, but they say it should be done by Congress, not executive power.
Groups that represent student borrowers say the changes are long overdue. Seth Frotman, executive director of the Student Borrower Protection Center, said the update is good news for millions of workers.
For too long, those who give the most to our communities and our country have been given the runaround and forced to shoulder debts that should have been canceled, he said in a statement. The Biden administration is taking a critical step towards alleviating that burden for our public service workers.
What Does Elizabeth Warrens Plan Look Like
One of the best plans, in my opinion, has been offered by Elizabeth Warren Presidential candidate from Democrats. What she is offering is the Government will erase up to $50,000 from student loan debts of every person. Yes, you saw it right, $50,000. And the specific amount would hinge on the income of individuals.
Elizabeth Warren emphasized that her student loan forgiveness plan would forgive the entire loan amount of 75% of borrowers. On top of that, 95% of all borrowers would receive some help from this program.
Digging out a bit more, we can see that people with an annual income below $100,000 would get the whole $50,000 forgiveness. The more income would mean the less forgiveness amount to be received from the Government. What I especially like about this plan is, it takes into consideration everyone who has an annual income of up to $250,000. And anyway, borrowers earning more than $250,000 should not ideally face any difficulty paying back their debt amount.
Coming to the point whether I think it is better than student loan forgiveness of Trump, yes I do think so. And it is crystal clear that the proposal of Elizabeth is concise, accurate, and straight to the point. There are not any uncertain points that would make us confused.
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Forgiveness For Public Service
A second current policy in place that allows for federal student debt forgiveness is the Public Service Loan Forgiveness program.
The College Cost Reduction and Access Act of 2007 created the PSLF, which allows for borrowers with federal direct loans who make 120 qualifying monthly payments while working full-time for a qualifying employerto have the remainder of their balance forgiven. Qualifying employers include any federal, state, local or tribal government and not-for-profit organizations
But similarly, the program has not led to forgiveness for many borrowers.
In 2018, the Department of Education released data that indicated 29,000 borrowers had applied to have their student loans forgiven under PSLF, but only 96 received forgiveness. That means that over 99% of borrowers who applied were rejected
In response, Congress authorized an expansion of the program. However, a 2019 Government Accountability Office report found that approximately 99% of loan-forgiveness requests under that newly expanded program were rejected. According to the report, the Department of Education processed nearly 54,000 requests for forgiveness, approved just 661 and spent only $27 million of the $700 million Congress set aside for the expanded program.
What Did Original Proposal Of Trump Look Like
During his candidacy, Donald Trump was planning to bring two major modifications to the current student loan forgiveness program. The first one was to make the payback rate fixed at 12.5% for monthly payments of borrowers. And the other one was to make the payback duration fixed at 15 years.
If I say I did not like it initially, it would be untrue. I was delighted to see that people would have to make payments for 15 years. That means 60 payments less compared to the number of payments in 20-year repayment duration. As a result, borrowers would have to pay much less money in the end.
Nevertheless, at the very moment, I do not think Trump student loans plan will do any good for people. If you wonder why, note that Betsy Devos, the Education Secretary appointed by President Trump, has been trying to eliminate all student loan forgiveness plans initiated by the Obama Administration. To be more precise, she has been actively working on canceling the PSLF program. On top of that, she is doing her best to get the Borrowers Defense Against Repayment program removed from being managed through the Education Department.
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