Trump Student Loan Forgiveness- Changes and Proposals

This article describes about all the changes that are made to the student loan program and the changes that are planning to be made to student loans. Includes all the programs such as student loan forgiveness, repayment plans,etc

Updated by Anuroop C on 22nd July 2020

With every new president coming into power, he does somethings to fulfill his agenda and make policies and governance more accessible and efficient to deal with. These are certain things that every government in the world deals with(at least the democratic ones). Similarly, since Trump has come into power, he made and is planning to make changes to Federal Student Financial Aid. He has planned or is planning to make changes to many student aid programs like PSLF(Public Service Loan Forgiveness), Income-driven repayment plans for student loans, and many more. It is very important to note that these changes will only affect the upcoming borrowers and WILL NOT affect people who have already borrowed their student loans.

It should be noted that are a number of jobs available to help get your loans forgiven. Having an in-depth understanding of the various student loan forgiveness jobs out there is crucial to see if your job can get your loans forgiven.

Let us take a quick look at to what all things under Student loans did Donald Trump and his government made the changes:

  • Taxes on loan forgiveness due to discharge and disability

  • Tuition and fees deduction in taxes

  • Public service loan forgiveness

  • Subsidized loan forgiveness

  • Income-driven repayment plans

  • Loans discharged in bankruptcy

  • Student loan interest deduction

That is quite a list. Let us explore in detail all the changes Trump made or is planning to make.

Table of contents

What changes in Student Loan Programs did Trump make?

Let us see what changes were incorporated into the Student loan forgiveness department.

Making discharge of loans tax-free due to Disability or Death

Except for PSLF, all the loan forgiveness programs require tax to be paid for the amount that has been forgiven in Student loan forgiveness programs. That is, for example, if $50,000 of your outstanding loan amount has been forgiven, then that $50,000 is taxable and will show up on your tax sheets at the time you pay up your taxes for that year.

Even in case, your loans are forgiven due to disability or death, then that loan amount is also taxable, which does not make sense as you are required to pay taxes even if you are unable to work due to disability.

However, the Trump Government brought in a tax plan called as the Tax Cuts and Jobs Act, under which the taxation of student loan discharge due to Total and Permanent Disability, does not require for tax payment.

This means that if your loans are forgiven due to Disability or Death, then you or your family will not be taxable.

An important point to remember is that this plan comes in effect from January 1, 2018, and in case your loan is forgiven in 2017, you are still taxable for your forgiven amount and this act expires in 2025, after which Congress is responsible for renewing the act. Read more about Discharge due to Disability.

This is an excellent move from the Trump government and an appreciable effort.

Removing Tuition and Fees reduction in Taxes

Under the Tax Cuts and Jobs Act, the tuition and fees deduction in your tax has been removed. This deduction previously allowed taxpayers to reduce their taxable income by up to $4000.

The original tax reduction had benefited the high earning taxpayer. With this gone, if you are a high earning tax-payer then, you will have to shed out a little bit extra to pay your taxes.

Though this tax reduction has gone, other tax deductions such as American Opportunity Tax   Credit, the Lifetime Learning Tax Credit, are still available. 

These are the changes that have already been implemented by the Federal Government. And the laws can always change in the future. It is best for you to continuously stay updated in this matter, especially if it affects. Let us also check out what changes the Trump government is planning on making and the proposals in this field. 

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What are the changes that Trump plans on bringing to Student loan Forgiveness?

There are some changes that are being proposed to be made to the federal financial aid program.

Removing the Public Service Loan Forgiveness(PSLF) Program

This is one of the many awful proposals that the Trump government has come up with which is to eliminate the PSLF plan. It is one of the many ways that your student loans can be forgiven.

Although he attempted to defund the PSLF program in his very first budget itself, it was received with legal questions therefore eventually dropping out the whole of the plan.

However, these changes would only affect the upcoming student loan borrowers and not the already people who have already borrowed.

Although only a handful of people receive the loan forgiveness benefit every year, it was a good driving factor for the people to take up jobs in the low-paying sector such as Public service, the federal government, etc. Removing this program would affect the people’s inspiration to take up the jobs and a very less number of people would pursue such jobs, though they are valuable to the society and community we live in.

Eliminating Subsidized Student Loans

It is a proposal from Trump’s Government to remove the subsidized student loans in his latest budget proposal. Subsidized student loans provide great assistance to the students in actual need. Subsidized student loans make the government pay for the interest accrued on student loans when the student is in college. Removing this facility shall gravely affect many students in need and it is perhaps one of the worst proposals that are made regarding student loans as around 5.5 million students borrowed subsidized student loans. If this proposal is implemented college shall become even more expensive for students. 

Learn more about Federal Subsidized student loans.

Elimination of Income-driven repayment plans into one single repayment plan

Under this proposal, this new repayment plan would restrict the monthly payment at 12.5% of their discretionary income. It would also provide student loan forgiveness at 15 years for undergraduates and at 30 years for graduate student loan borrowers.

Trump made comments that this student loan forgiveness would be covered completely by the government, which is widely believed that it will be made tax-free. 

This plan to cap the monthly payment to 12.5% of your income, is an advantage to some and disadvantage to some, as some people only pay about 10% as their monthly payments. And the forgiveness after 30 years for graduates is quite a long time. And if this forgiven amount is still taxable, it would prove to be a loss for 

Allow Student loans to be discharged in Bankruptcy

This proposal, from the Department of Education, seeks to remove student loans when declared bankruptcy

Currently, student loans are not even discharged due to bankruptcy except in the case of “undue hardship”. Since this term “undue hardship” was not defined by Congress, the courts decide to take that into their hands and getting your student loans cleared has only become a theory. But changing the rules of bankruptcy would seriously disrupt the market of student loans making it, even more, harder and expensive to get a student loan.E

Elimination of the Student loan Interest Deduction

In the Tax Cuts and Jobs Act, Trump actually proposed removing student loan interest deduction. While it was saved in the final bill, it doesn’t mean that Trump still wants to see it eliminated.

It provides up to $2500 in deduction of the interest you paid on a student loan. This decision is neutral as it does not make any sense for people with low-income levels.

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With all these proposals and changes coming, it is plausible for you to get overwhelmed. But remember these are not the permanent changes as the law is always configurable according to the Commander-in-chief who comes next and his plan. But make sure that you know all the updates that are going to affect you and plan according to them. 

Read more about paying off your student loans faster