- President Trump’s budget calls for the elimination of the Public Service Loan Forgiveness Program
- The proposal is not yet law, and such dramatic changes to the federal budget are expected to be met with significant opposition from Congress
- The White House has stated that changes to PSLF will apply only to new borrowers and not those who are currently working toward loan forgiveness under the program
The Budget Proposal
President Trump’s budget calls for dramatic cuts to federal spending, amounting to $4.5 trillion by 2027. In addition to cuts to Medicaid, food stamps, and disability programs, the proposal takes aim at student loan reform, including the elimination of the Public Service Loan Forgiveness Program (PSLF).
Public Service Loan Forgiveness
The Public Service Loan Forgiveness program, which was signed into law in 2007 under President George W. Bush, was designed to incentivize graduates to pursue careers in government and the non-profit sector. Under the program, teachers, social workers, lawyers, and doctors as well as other public sector and non-profit employees who work at qualifying institutions are eligible for loan forgiveness after 10 years of service.
To qualify, borrowers are required to make monthly payments on their student loans, amounting to 120 in total. Notably, they have the option of choosing an income-driven repayment plan, which sets monthly payments equal to 10 percent of their discretionary income, regardless of the loan amount. After 10 years of qualifying payments, the remaining loan balance is forgiven, tax-free. (Unlike loan forgiveness under income-driven repayment plans, loan balances forgiven under PSLF are not subject to federal income tax.)
Over time, the number of borrowers enrolled in PSLF has increased substantially, drawing criticism from both political parties. At the end of 2016, more than 550,000 borrowers were enrolled in the program, up from approximately 222,000 at the start of 2015. (Technically, borrowers aren’t required to formally enroll in the program, though the federal government recommends that they certify their employment each year to track progress toward PSLF eligibility, so the total number could be much higher.) Critics argue that the program subsidizes expensive graduate degrees for borrowers entering high-paid professions in law and medicine. Most hospitals, for instance, meet the nonprofit requirement.
Public Service Student Loan Forgiveness Employer Certifications
Proposed Changes to PSLF
President Trump’s budget proposal calls for the complete elimination of PSLF in addition to several other student loan reforms. The proposed changes would apply only to borrowers who take out loans after July 2018, leaving those currently working toward forgiveness under PSLF unaffected. The following is excerpted from the budget proposal:
“To support this streamlined pathway to debt relief for undergraduate borrowers, and to generate savings that help put the Nation on a more sustainable fiscal path, the Budget eliminates the Public Service Loan Forgiveness program, establishes reforms to guarantee that all borrowers in IDR pay an equitable share of their income, and eliminates subsidized loans. These reforms will reduce inefficiencies in the student loan program and focus assistance on needy undergraduate student borrowers instead of high-income, high-balance graduate borrowers. All student loan proposals apply to loans originated on or after July 1, 2018, except those provided to borrowers to finish their current course of study.”
By eliminating PSLF, the administration estimates it will generate more than $10 billion in savings by 2022.
The president’s budget proposal calls for sweeping changes to federal student loan programs, including the elimination of Public Service Loan Forgiveness. While the budget, which calls for broad changes to many entitlement programs, is expected to be roundly rejected by Congress, changes to PSLF are likely in the not-so-distant future. The program has been criticized by both parties as a subsidy for professionals with high earning potential, particularly those entering the medical and legal fields. Capping loan forgiveness at a predetermined amount has been proposed before - the Obama administration proposed capping loan forgiveness at $57,500 - and is a provision that may resurface as Congressional leaders begin budget negotiations.