Trump's Budget Would End Student Loan Forgiveness Program

(CNBC) -- Higher education faces massive changes in President Trump's spending plan released on Monday.

The proposal would sharply curtail income-based loan repayment plans, scratch the Public Service Loan Forgiveness Program, embolden the government to go after students who don't pay their loans and cut funding for federal work study in half.

Changes to loans would apply to borrowing after July 1, 2019, not including those loans provided to borrowers to finish their current education.

The budget would eliminate subsidized loans. Some 5.7 million students had subsidized loans in the 2016-2017 academic year, according to Mark Kantrowitz, a student loan expert.

The budget plan also would narrow the number of income-driven repayment plans — in which people pay back their loans at a rate that takes into consideration their income — from four to just one. Under that option, students' monthly payments would be capped at 12.5 percent. Students generally pay 10 percent of their discretionary income under current income-based repayment plans.

However, undergraduate students would have their loans forgiven after 15 years, compared with 20 years now. So they'd be paying more per month, but less overall. Graduate students, meanwhile, would not have their loans forgiven for 30 years.

Graduate students pay more

"Graduate students would be paying significantly more," Kantrowitz said.

Pell Grants would be expanded to cover short-term, training programs.

The Public Service Loan Forgiveness Program is eliminated in the proposed budget. This program allows former students who fulfill certain public service positions — such as public school teachers or health researchers — to have their loans erased after 10 years of on-time payments. Nearly two-thirds of student loan borrowers who've shown interest in the Public Service Loan Forgiveness earn less than $50,000 a year.

"You may have fewer people pursuing degrees in areas that will lead to public service occupations," said Kantrowitz. "You won't have as many prosecutors and public defenders. You won't have as many people pursuing law enforcement or becoming EMTs, firemen and members of the military."

People whose loans fall into delinquency would be subject to more stringent enforcement as the proposal also calls to "streamline the Department of Education's ability to verify applicants' income data held by the Internal Revenue Service."

Some 30 programs would also lose funding, including the Supporting Effective Instruction State Grants, 21st Century Community Learning Centers and Federal Supplemental Educational Opportunity Grant programs.

The president's proposal is subject to approval by Congress and is likely to be modified by legislators.


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