The recently proposed a federal budget that makes some major changes to student loans, including eliminating the current student loan forgiveness program. There’s no guarantee that these changes will be ratified into law, but it’s important to understand how they could affect your student loan status if they are.
First, we need to understand the current debacle that is student loan debt in the United States. Our citizens owe around $1.6 trillion in student loans, with about one in six Americans shouldering a piece of that debt. For a little perspective, that $1.6T is more than the amount the federal government spent on the military and Medicare combined.
It’s a financial burden that carries some serious implications for our national economy, and the financial While some Democratic presidential hopefuls are touting the benefits of forgiving student loan debt completely (and maybe even offering free college tuition like other modern nations). The thinking there is that debt relief would provide a boost to the economy, help level the playing field for the younger generations who have watched inflation outpace the average income by an alarming amount, and promote a more educated population.
But the incumbent Republicans have a different opinion, one in which none of the above factors are a major concern and we should instead focus on slashing budget items in order to allocate that money elsewhere.
What the new budget would eliminate
So, rather than forgiving student loan debt and subsidizing education in order to encourage an informed and capable populace, what exactly does the new budget propose? First, it would get rid of some things, namely:
- Subsidized Stafford Loans. These loans don’t accrue interest while you’re enrolled, making them a popular choice for college students. There were 29.6-million individuals with subsidized Stafford Loans in 2018.
- The Supplemental Educational Opportunity Grant. This grant was awarded to 1.6-million individuals from 2014-2015 (most recent stats available), with an average award amount of just $607. That might not sound like much, but the vast majority of recipients were either independent students or from families making less than $30,000 per year.
- $630-million in funding to the Federal Work Study Program. This program provides money for universities and other public institutions to offer part-time work to students. Their 2019 operating budget was $1.13B, which is reduced to just $500m in this proposal.
- All income-driven loan repayment options, except one. The remaining option would raise payment rates from 10% of your income to 12.5% and reduce payment periods from 20 years to 15. For graduate students, that payment period stretches to 30 years.
- Public Service Loan Forgiveness. Working in the public or non-profit sector used to come with student loan forgiveness—after 10 years of service and on-time loan payments, the balance of your loans were erased. This $12B program dies under the current budget proposal, making public service careers (and their comparatively lower salaries, versus the private sector) far less enticing (or in some cases, even possible).
Will this budget pass?
Obviously, the above changes could have a major impact on the financial independence of millions of young Americans. But this is just the proposed budget, and a whole lot has to happen before any of these changes actually take place.
In fact, it’s likely that the budget won’t pass at all. The House holds the pursestrings, and the House is currently under Democrat control. Since all things in the US government have been decided along party lines for the past several years, it is likely that this iteration of the budget will be rejected and sent back to the drawing board.
That is not a guarantee, however, and even if this version of the budget is rejected it still serves an indication of things to come. The Trump administration has slashed federal funding for education in each of its previous budgets, and it will likely do so going forward. While there are other areas of the budget with far greater impact on national spending, it is likely that education will remain in the crosshairs when it comes to slashing budgets.
If you’d like to plan for paying off your student loans, or come up with a contingency plan for paying student loans should your debt forgiveness plan suddenly vanish, set up an appointment with a qualified professional today!