President Trump proposed new changes to student loans as part of his annual budget proposal.Here’s what you need to know.
- Undergraduates can get federal student loan forgiveness after 15 years
2. Limits annual and lifetime student loan limits for graduate students and parent borrowers
3. Eliminates subsidized federal student loansEliminates public service loan forgiveness
4. Expands eligibility for Pell Grants, supports borrower defense rule, and provides discretionary funding for Historically Black Colleges and Universities (HBCUs)
Trump proposed an income-based repayment plan that would cap monthly student loan payments at 12.5% of discretionary income and forgive remaining balances after 15 years. While Trump’s proposal raises the monthly payment cap from 10% to 12.5% of income, his proposal would forgive the remaining student loan balance five to 10 years sooner than the current income-driven repayment plans.
Parent PLUS Loans help parents and grandparents fund undergraduate education for their dependent children or grandchildren. Graduate student loans also borrow PLUS loans to fund their graduate school education. Parent PLUS Loans are federal loans with a relatively high interest rate – about 7% – that can be expensive for borrowers in or near retirement. The proposal would limit the amount of Parent PLUS Loans and graduate PLUS Loans so that parents, grandparents and graduate students can borrow less to mitigate the risk of financial hardship and potential default.
The president’s budget also would eliminate subsidized student loans, which means that the federal government no longer would pay the interest costs on federal student loans while borrowers are enrolled in school.
At this point, this is a budget proposal submitted to Congress, which decides federal spending. Therefore, the budget proposals do not become law without congressional approval.
45 million Americans collectively owe $1.6 trillion of student loan debt. Today, student loan debt is the second highest category of consumer debt after mortgages, and the average student loan debt is about $29,200 per borrower