With the 2020 elections quickly approaching, both parties are proposing financial programs that take care of college funds. In a recent election debate, Democratic candidates offered a robust Trump student loan forgiveness plan. Meanwhile, President Trump made some changes to forgiveness plans and proposed many more. What’s clear is that financing for higher studies has become a hot political subject, with loan forgiveness programs taking the cream.
A quick look back, changes to Trump student loan forgiveness program started in 2017 after Tax Cuts, and the passing of Job Act. However, these changes are only the tip of the iceberg. Significant changes are awaited if the pre-budget plans for 2020 are to be believed. The program indicates that Income-Driven Repayment plans are complicated. Instead of multiple IDRs, they propose combining loans into a single IDR. Plus, the budget plan aims to eliminate Public Service Loan Forgiveness. Some changes have already happened; some are awaited. However, public awareness about these changes are still at a low point. The following sections will explain these changes and proposals in more detail.
Before we get into the nuts-and-bolts of it, readers should be aware that proposals are offers that might not have any effect in the future. However, debtors should consider these claims and take action on student loans instead of ignoring them. If you need any help, Student Loan Resolved can guide you through the process.
Changes in Trump Student Loan Forgiveness
Let’s start with the changes that the Trump administration made on the student forgiveness plan until now.
Note: These changes are laws, not proposals, i.e., they are in effect.
Tax-Free Death and Disability Student Loan Discharge
Many student loan forgiveness and discharge programs are taxable. It means that if a debtor gets $50 k loan forgiven and another $40k as income, he/she needs to pay tax from $100k. This process increased tax bills. Plus, if a person gets forgiveness due to disability, he could no longer be qualified for aid programs. The reason was that laws viewed forgiveness as some income. If an individual receives that ‘income,’ there was no way to get aid programs, too. For these problems, people with disabilities did not want to get Total and Permanent Disability Discharge. Instead, they opted for an income-driven repayment plan.
Related: Student Loan Consolidation
Trump administration recognized this problem and passed a law that solved those it in 2017. According to the law effective from January of 2018, discharged Trump student loans are not taxable income anymore. No additional tax is required for TDS loan discharge. However, this law is only applicable to people who discharged the loan after January 2018 till the end of 2025.
As a result of the new change, Trump student loan forgiveness was not a part of taxable income for people with disabilities. It reduced the tax burden for them. Plus, with saving money from federal loans, people could pay to any other private lenders.
Tuition and Fees Deduction under Trump Student Loan Forgiveness
Another element of the Tax Cuts and Jobs Act was about tuition and fee deduction. This deduction lets taxpayers decrease their taxable income by almost $4k. However, it expired in 2016, and 2017, the Tax Cuts and Jobs Act eliminated it. While it is not favorable for taxpayers, there still exist some other opportunities. Though officials proposed to eliminate other tax credits, the proposals were not accepted. Therefore, people can still utilize the American Opportunity Tax Credit or the Lifetime Learning Tax Credit. Yet, people should be careful about the limits those education tax credits provide. Though tuition and fees deduction helped people to avoid some portion of the tax, it got eliminated.
Proposals for Trump Student Loans
There are some proposals that Trump administration has offered. While debtors should not treat these proposals as laws, they should take action to avoid risks of these ideas. All recommendations in the budget of 2020 aim to involve loans after July 2020. The exception is a loan that a student borrows for financing current studies.
Looking at the U.S government budget plan for 2020, we can see some proposals for student forgiveness plans. The budget plan indicates that the aim of the government is helping students and families to pay the college costs. It also addresses student debt problems by simplifying loan repayment and eliminating inefficient programs. So, as mentioned in the budget plan, the Trump administration tries to assist people with higher education costs while decreasing the complexity of financial aid. In this goal, they offer several changes for 2020.
Defund of Public Service Loan Forgiveness
PSLF has long been the target of Trump administration. It is worthy of mentioning that this plan is one of the most preferred types of Trump Student Loan Forgiveness programs. In 2018, officials tried to defund PSLF. However, this proposal raised many questions, including whether there is enough money or not. Subsequently, the suggestion was denied. Then, in 2019, Trump once again suggested the elimination of Public Service Loan Forgiveness. It is no surprise that this proposal exists in the budget plan for 2020, too.
Officials recommend that after removal, people with PSLF program should get income-based student loan payment plans. Plus, officials suggest that there should be a comprehensive system for debtors to share their income data truthfully and reduce wrong payments. As a part of this suggestion, auto-enrolling the data of delinquent debtors also exist. Besides, the Department of Education should verify the income data by its Internal Revenue Service. In this way, the government plans to reduce waste and direct funds to people in need efficiently.
Some people also oppose this idea. When people do not get a student forgiveness plan for public service, they will be less willing to work in government, teaching, or law enforcement. and they also require a degree to work. Without student forgiveness, people will avoid getting a degree in this field and work. However, those are the highly integral sectors for public service.
Income-Driven Repayment Plans
In general, we can observe a shift toward IDR in the next budget plan. IDR plan is based on the monthly income and family size. Though it is more useful for the government rather than Public Service Loan Forgiveness, too many IDRs are not desirable, either. Officials state that multi-repayment plans confuse borrowers to choose the right strategy. Hence, the recommendation is merging several IDRs into a single repayment plan. In a single plan, the monthly payment will be 12.5% of discretionary income. If an undergraduate student pays 180 months successfully, any amount of rest will be forgiven. For a graduate student debt after 30 years of repayment will be forgiven.
Pell Grant Eligibility
Another part of recommendations for 2020 is about Pell Grant eligibility for short-term programs. This program aims to give high-quality short term education and training for a future career. The officials think that it is an excellent way to ensure people get well-paying jobs even if they do not study a four-year degree program.
Conclusion
Trump administration made several changes in student forgiveness programs. There are new changes that they recommend in the budget plan of the U.S government for 2020. The previous actions involved some positive results for disabled people. The reason was that their discharge was no longer taxable. Trump Student Loan Forgiveness also eliminated fees and tuition deductions, which hurt taxpayers. They were no longer to get a tax deduction. For 2020, Trump again suggests the elimination of Public Service Loan Forgiveness, as he did in 2018 and 2019. Besides, he recommends joining multi Income-Driven Repayment plans into a single one. Another improvement is about the Pell Grant Eligibility for short term programs. These proposals are not accepted yet.
