ALL YOU NEED TO KNOW
TRUMP STUDENT LOAN FORGIVENESS PLAN: It looks like Donald Trumps student loan repayment plan will be pretty similar to the plan that already exists; with beneficial alterations.
- Trump does not want the federal government profiting off student loans any longer
- Trump calls for the elimination of the Department of Education
- Trump wants to punish schools financially if their students fail to repay their loans, believing it’s beneficial for colleges to have “skin in the game” and be held partially responsible if their students default on their loans
As graduates struggle to pay their staggering student loan bills, Trump proposes a revised version of the current income-based student loan repayment plans.
In a recent speech to a group of high school and college students, Trump called for a student loan forgiveness plan similar to the one in place; with a few minor changes.
The current plan, under Obama Student Loan Forgiveness, caps borrowers monthly payments on their student loans at 10% of their discretionary income for 20 years.
Trump has proposed an increase in monthly payments from 10% to 12.5% of the borrower’s income however, and most notably, he lowers the payment program from 20 years to 15 years.
Trump explains, “If borrowers work hard to make their payments for 15 years, we’ll let them get on with their lives.”
He has said he gets asked about student debt more than any other issues on the campaign trail and understands the magnitude of the problem.
When asked about the logistics he added, “the plan will be paid for by lowering federal spending on ever-rising college tuition and fewer defaults on student loans.”
The government is already offering income-driven repayment plans for struggling borrowers that forgives student loan debt after 120 consecutive payments made on the loans.
This has proven extremely beneficial for the graduates that aren’t able to afford their monthly payments and who would otherwise be forced to pay their loans back within the standard 10 year repayment plan.
Lowering the monthly payment amount and extending the repayment length from 10 to 20 years, has been crucial for a great deal of American’s struggling with their loans.
Trump is also calling to hold universities accountable on the percentage of their endowment that they spend on administrative costs versus spending that directly impacts students.
“If colleges refuse to take this responsibility seriously, they will be held accountable, including by reconsidering whether those with huge endowments deserve to keep those endowments tax exempt. We have a lot of power over the colleges. And they’re not doing the job of cost cutting,” Trump said.
A campaign aid explains that Trump will call for the withholding of federal funds to colleges that do not do enough to lower tuition costs. Holding these colleges responsible gets to the root of the problem, proving his is one of the better plans proposed in recent history.
Trump also said he would “take steps to push colleges to cut the skyrocketing cost of tuition.” He has made it very clear that he doesn’t want the federal government profiting off student loans any longer and he believes the tuition cost is the fault of the government
IT ONLY TAKES ABOUT 10 MINUTES TO SEE IF YOU QUALIFY!
Call us at (800) 940-8911 or fill out the form on this page to speak to one of our representatives. It’s 100% free to see if you qualify for Trump’s student loan forgiveness, and only takes a few minutes.
OBAMA’S FORGIVENESS FOR FEDERAL STUDENT LOANS
When taking out their student loan debt, most students don’t realize the financial burden they’re signing up for. They see this debt as the path to a career they love and a better future. However, repayment begins shortly after college and it’s then borrowers understand what they’re up against.
President Obama has worked to alleviate this financial burden with his REPAYE program which allows those with Federal student loan debt to enroll in a payment plan to assist in the payback process. For many borrowers, this plan offers lower monthly payments and loan forgiveness. The lowest monthly payment is set at $0 a month which is available for those with low income.
This program was initially put in place for borrowers with loans starting in or after October 2007. It has since expanded to all borrowers with a federal student loan account.
THE PAY AS YOU EARN STUDENT LOAN REPAYMENT PLAN
The Pay As You Earn program or PAYE, offers students monthly payments based on their current income. When calculating what payment each borrower qualifies for, they take into account their discretionary income and family size and then set the payments to 10% of their monthly income. Most program lengths are set at 240 months (20 years). After all payments have been made while enrolled in the program, the remaining principal and interest is forgiven.
PUBLIC SERVICE LOAN FORGIVENESS PROGRAM UPDATES
Obama has reformed the Public Service Loan Forgiveness Program (PSLF) to assist those working for a non-profit or government agency. Although PSLF existed before Obama, those who now qualify will be eligible to have the remaining balance of their student loans forgiven after completing the 120 month program.
As you’ll notice, this program is half the length of the standard PAYE program set at 240 months. Those who work for a qualifying government or non-profit agency for the duration of the 120 months will qualify for this program. For more information about the PSLF program, check out our page here.
HOW DOES PRESIDENT OBAMA’S STUDENT LOAN FORGIVENESS WORK?
While the Obama Student Loan Forgiveness Program may seem a bit confusing, what you need to know is Obama reformed the existing federal loan programs to assist borrowers in paying back their student loans.
The program has two main objectives: First, Obama wanted to ensure that students would continue taking out federal loans to help pay for college. If students felt the loan debt was too large of a burden to carry, they may be inclined to opt out of college altogether; a scenario he wanted to avoid at all
The second motive behind the program is assisting those who already have student loan debt and are struggling to pay it back. If a student owes $30,000 in student loans, the lender generally asks for 1% of the total amount which in this case equals $300/month. This is simply not feasible for the majority of American’s; especially those living on lower incomes.
For some, they will qualify for a $0 monthly payment. This means they’ll be working towards their program length while paying nothing on the loan. Others will qualify for a reduced monthly payment which is set at 10% of their monthly income. The program takes into account borrowers family size, filing status and income.
Every 12 months the lender requests the borrowers tax returns which sets the monthly payment for the following year.
PRESIDENT OBAMA INCREASES ACCESS TO PAY AS YOU EARN
Last June, President Obama announced new changes to the federal student loan forgiveness program. One very important and valuable reform that was made is the Pay As You Earn Student Loan Repayment Plan, which is available to over five million additional borrowers.
The details of this objective include:
- The Pay As You Earn repayment program, long known for having an October 2007 registration deadline, will have its eligibility criteria significant relaxed, meaning that anyone with federal student loan debt will quality, regardless of their enrollment date
- Eligibility to enroll in the program will not open up until December 2015, so depending on your circumstances you may have to wait until the next cycle to apply
What is “Pay As You Earn”?
Strangely enough, the most negative aspect of President Obama’s student loan forgiveness program is that most people don’t even know it exists!
Unlike other programs like Obamacare, Pay As You Earn’s existence continues to be hidden by the general public, even though it is an incredibly valuable program.
Pay As You Earn is one of 7 Federal Student Loan Repayment Plans, and it is the newest. The program was first introduced as part of President Obama’s sweeping student loan reforms proposed in 2011, but it did not become official until 2012.
Borrowers on the Pay As You Earn repayment plan are lucky enough to receive considerable financial forgiveness. They are given a 10% cap on federal student loan repayments, which means that they could easily save thousands of dollars of their hard-earned discretionary income.
There is a downside to Pay As You Earn. Because it adds payments, it also extends the lifespan of the repayment period, making the total loan more expensive since interest has more time to accumulate additional debt.
However, borrowers can protect themselves from further debt by researching the specific details of Pay As You Earn. It also offers comprehensive student loan forgiveness once 20 full years of scheduled monthly payments have been made.
Additionally, workers in the public sector receive special benefits. Those graduates who are working for either the government or a nonprofit are offered student loan forgiveness after making just ten years’ worth of on-time payments.
Due to these particulars, this might not be the most universally appealing student loan repayment plan. It greatly depends on the specifics of every student’s specific situation. However, there is a certain demographic that it is popular with: those with excessive levels of student loan debt and no real hope to ever pay it off successfully. It considerably eases the stress of monthly payments for grads in this situation.
Obama Announces Support for Refinancing
In addition to implementing reforms and relaxing the limitations on Pay As You Earn, President Obama has also been vocal about his support for the Bank on Students Emergency Loan Refinance Act, first proposed by Massachusetts Democratic Senator Elizabeth Warren.
This act, should it pass, will ultimately change federal law to allow borrowers with government-backed student loans to refinance them at current interest rates. This is incredibly important because it will reduce monthly payments, similar to how PAYE does—but it will also reduce total outstanding debt.
Students who took out loans before interest rates plummeted will find this reform to be a particular comfort. This small but significant change could save them more than the PAYE plan would, and it would actually reduce their total debt.
While PAYE is a Band-Aid solution that only reduces monthly payments but ultimately increases total outstanding debt, this is a much more valuable reform. Keep an eye on it over the coming few months, and stay informed!
PRESIDENT OBAMA TO ANNOUNCE UPDATES TODAY
Media sources have provided information that suggests that President Obama will be announcing further updates to his student loan forgiveness program today.
An official in the White House has alerted the media that the updates will include the following:
- Expanding the eligibility criteria for the Pay As You Earn Student Loan Repayment Plan, which caps monthly student loan payments at just 10% of discretionary income
President Obama will also allegedly be promoting a recent proposal from Senator Elizabeth Warren. This proposals suggests that borrowers should be able to refinance their federal student loans.
The official announcement will come today at 10:45 AM, PST, and we’ll provide you with the latest updates as they are released.
Feel free to check back soon for more information.
Proposed Changes in the Fiscal Year 2015 Budget
It appears quite likely that President Obama’s student loan forgiveness plan will soon go through another series of significant changes. Some of these will be positive, while others will undoubtedly continue to worry borrowers who are already feeling overpowered by their student loan debt.
The Obama Administration’s proposed budget for the fiscal year of 2015 is set to make a total of seven major changes to the student loan debt reforms that the President initially introduced a few years back. Three of these alterations appear to be positive, while another four will undoubtedly not be popular among two specific groups: high-income borrowers and public service workers.
Should Congress approve of the budget and not alter any of its proposed reforms, the following changes will occur.
POSITIVE CHANGES TO THE OBAMA STUDENT LOAN REFORMS
Three of the following major positive changes will occur if Congress approves this objective, and they will make many borrowers very happy.
Pay As You Earn Will Be Made Available to Everyone
For many years, the ever-popular Pay As You Earn Plan (PAYE) was typically only available to those borrowers who met very specific criteria, and everyone else was forced out by default. Now, thankfully, the Obama administration is attempting to relax these restrictions and make this program available to a wider range of students.
Currently, if your student loans are any older than October 1, 2007, the Income-Based Student Loan Repayment Plan (IBR) is the most affordable of the various Student Loan Repayment Plans available to you, capping your monthly student loan payments at 15% of discretionary income. However, much to many borrowers’ disappointment, PAYE is not currently available to anyone with older loans.
If the aforementioned reform to the program is approved, those borrowers with student loans older than October 1, 2007 could potentially be able to receive the benefits that PAYE offers.
If the Obama Administration’s 2015 budget is approved, borrowers will get the chance to enroll in the new Pay As You Earn Student Loan Repayment Plan. This plan has a lower cap for monthly payments: only 10%. The difference of that small 5% can add up to a significant amount of savings each month. Additionally, PAYE will forgive your student loans after only 20 years, compared to IBR, which only provides forgiveness after 25.
In an economic climate where so many graduates today are seeking Federal Student Loan Debt Relief, these changes are highly significant.
In comparison to IBR, PAYE could increase the expense of your loans in the long run. This is important to keep in mind. Since your loan term will be extended and more interest will accumulate over the course of the loan, PAYE may not be the best option for everyone. Please note that in spite of this, if you’re planning on making 20 years of payments and eventually receiving Federal Student Loan Forgiveness, then you’ll end up saving money from switching off IBR to PAYE in the long run.
Loan Forgiveness Won’t Bring Tax Penalties
A great deal of federal student loan borrowers will be pleased to learn the details surrounding this particular improvement in the national fight against the current crippling Student Loan Debt Crisis.
Previous loan forgiveness programs such as IBR and PAYE have disappointed borrowers for several reasons. One of the biggest failures with these programs is the fact that forgiven debt is still considered taxable income. This sneaky catch to loan forgiveness has cost many borrowers thousands of dollars in additional taxes.
Those borrowers with Direct Subsidized or Unsubsidized student loans whose minimum payments aren’t high enough to cover interest charges each month are often hit the hardest in this situation. The eventual “forgiven” balance could end up being far higher than the amount of money they originally borrowed, which creates more problems than it solves.
It seems completely unfair to suggest that someone who pays off their debts for 25 years ultimately deserves to be ripped off in this way, but this is the way loan forgiveness programs deliberately mislead students.
If the 2015 budget forms do go through, whatever debt eventually gets forgiven won’t incur a tax penalty for borrowers. In our opinion, this is the biggest benefit and the most crucial reform to President Obama’s loan forgiveness program that could possibly be implemented. We are very excited to potentially watch this take place.
Monthly Interest Accrual Will Be Capped
A huge problem for many borrowers is interest. When your payments aren’t high enough to cover the interest that’s accumulating on the loan, “interest capitalization” occurs.
Basically, this is the process the banks use to intentionally increase the long-term costs of loans. They do this by adding the accrued interest to the original principal of the loan, which can end up increasing the expense of the loan in the long run.
It’s due to this sneaky law that some hardworking, committed borrowers still get tricked. It’s completely possible that you could make your payments in full and on time each month, but still end up owing more money. Does this seem fair?
It’s particularly problematic for those borrowers with Unsubsidized Loans who have been relying on Federal Deferments or Forbearance Programs, because the government will not cover the costs of their monthly interest accrual while their loans are on pause. This means that borrowers might be receiving excellent temporary debt relief, which looks good at first glance-but their long-term debt obligations will be increased due to interest capitalization.
In the worst-case scenario, you could end up borrowing a small amount, such as $25,000, in student loans–and then find yourself straddled with $250,000 of debt in as little as 15 years.
It is good news, then, that President Obama’s 2015 budget includes a provision set to cap interest accrual at just 50%. When a borrower’s monthly payment isn’t enough to cover the accumulating interest, this cap could end up being a very significant improvement.
Even if 50% interest accrual sounds extreme, there are no caps in place whatsoever right now. So this is very pleasant news for anyone having trouble making their monthly payments, especially for those relying on Deferments and Forbearance programs.
NEGATIVE CHANGES TO THE OBAMA STUDENT LOAN REFORMS
The proposed fiscal year budget, despite its improvements, has its downsides as well. Unfortunately, some detrimental changes will be put into place alongside the positive ones. These problems will be particularly severe for those borrowers hoping to take advantage of President Obama’s recent student loan reforms. In many cases, these are graduates with an extremely high amount of debt, and those who are seeking forgiveness under the Public Service Loan Forgiveness Program.
If the new budget is approved, here are the negative changes that you will see.
Borrowers With High Debt Won’t Get Forgiveness As Early
Anyone with more than $57,000 in federal student loan debt will be negatively affected by this proposed 2015 budget.
According to the budget, especially high borrowers won’t be able to receive loan forgiveness under PAYE at the new 20-year mark. Instead, they will have to wait 25 years before their debt is completely forgiven.
You might be wondering how those five years could potentially make such a huge impact, but when you consider that borrowers with loans over $57,000 are the people who need forgiveness the most, it doesn’t seem at all fair to suggest that they should be forced to repay their loans over a longer period of time.
Experts who work for the government and for watchdog agencies are claiming that this will help protect the long-term sustainability of the PAYE program and the other federal forgiveness programs currently in place. From our perspective, it seems less clear. Plenty of the government’s funding goes towards other programs besides student loan forgiveness.
If you feel that this change could affect you negatively, please don’t hesitate to call, write, or email your respective U.S. Representative or Senators to share your views. Your voice matters!
PSLF Forgiveness Will Be Capped at $57,000
Those borrowers who are using services provided by the Public Service Loan Forgiveness Program will be greatly affected by this one. However, if you are not using this program, this change will not affect you whatsoever, thankfully.
The new 2015 budget will cause a dramatic reduction in the “windfall benefit” built into the PSLF program and President Obama’s loan forgiveness reforms.
Instead of forgiving up to 100% of your federally-funded student loan debt, PSLF will now only allow you to write off a certain amount of debt. It is capped off at $57,000, which is still a significant amount of money, admittedly.
Many borrowers will be satisfied with this change as their debt is not this high, but for borrowers with greater debt, this will not be a positive change at all. It gets worse when you consider that public sector workers are impacted the most.
Some recent information suggests that this change won’t apply retroactively to anyone already enrolled in PSLF, so it’s possible that if you’ve been working towards loan forgiveness already, you may be entered into the protection portion of the program. Ideally, you will be able to write off the remainder of your debt in the future.
If you have doubts about this, we would highly suggest contacting whatever politician represents you and express your concerns.
Only Income-Based Plan Payments Will Count Towards PSLF Forgiveness
It appears that President Obama is unconcerned about public sector workers. The impact of PSLF forgiveness benefits will be significantly lessened should this change occur.
Currently, PSLF forgiveness kicks in automatically if a borrower has made “scheduled, full, on-time monthly payments” for 10 years, regardless of which student loan repayment plan they were made under. This allows for a fair bit of freedom.
Sadly, under the proposed 2015 budget, certain monthly payments will not count toward that 10 years’ wroth of payments. Those made under one of the income-driven plans (Income-Based Repayment, Income-Contingent Repayment, Income-Sensitive Repayment or the Pay as You Earn Plan) will count, but anything else will not.
As many borrowers began on the other plans, made months or years of payments under them, and then switched to one of the qualifying plans later on, this could be very disappointing to many people.
Once again, if these changes are implemented, they very likely won’t be applied retroactively. If you’ve been paying your debts off consistently, in full, and on time, you probably won’t have anything to worry about.
- Married Borrowers Can’t Separate Income Anymore
There are advantages to stating that you are married on your tax returns and filing separately. This is especially true when one member of the couple is the sole breadwinner and makes significantly more than the other.
Under either of these income-driven plans, filing your taxes together would ensure that your incomes were lumped together when calculating your monthly student loan payment. If you include your well-paid spouse’s earnings on your tax return, your monthly payments will undoubtedly increase, even if your income is low.
The new budget seems be making it more difficult for couples to file separately.
Should the budget be approved and put into action, you won’t be able to file yours and your spouse’s taxes separately. You won’t be able to protect yourself from skyrocketing monthly payments.
On the bright side, filing jointly will make you and your spouse eligible to claim the standard Student Loan Interest Tax Deduction. As of 2014, that means no more than $2,500 per year, so it isn’t much, and if your spouse makes over $50,000 a year, this deduction seems ridiculously small and insignificant.
An increase in monthly payments will be unavoidable for married couples should this budget be approved.
PRESIDENT OBAMA IS NOT FORGIVING 100% OF STUDENT LOANS
No, but some are. Let me explain why: federal loans are paid for by the tax payer. If you forgive all loans for the 45 million Americans who have student loan debt, you would be throwing away roughly $1.3 Trillion. That means the tax payer is responsible for this money while paying for others to have a free education; something they didn’t receive themselves.
What Obama has done is the next best thing which is having borrowers pay on the debts they willingly took out over a 120 – 240 month period of time. Those who qualify for the $0 monthly payment, for the duration of their program, will have ALL of their loans completely forgiven: this includes interest and principal.
THE STATE OF THE UNION SPEECH
President Obama’s student loan forgiveness plans are constantly in a state of evolution, but we do know that no major new updates were shared during his recent State of the Union address.
In fact, during his State of the Union speech delivered on January 28th, 2014, President Obama barely mentioned student loan debt at all, in spite of how great of a concern it is to many Americans.
Some media experts even suggested that his initial bold statements about the student loan forgiveness program may have been a bit premature, as he seemed to be backtracking a little during the State of the Union address—and indicating that he may not be able to implement such dramatic changes as he initially stated.
He said very clearly that he wishes to make higher education more accessible for every American, in spite of socio-economic background, but he did not mention specifics about how he planned to actually do this. Many political speeches as of late have skirted around the issue.
In any case, here is a comprehensive summary of the student loan reforms that President Obama previously announced. We also provide an expert analysis of what’s changing, who’s eligible to receive the benefits, and how to apply for the program.
Additional updates will be provided whenever the President offers more information, so please consider checking back regularly.
Attacking Excessive Student Loan Debt
President Obama’s student loan forgiveness program, for all its supposed faults, can still save you a lot of money.
The vast majority of students in the graduating class of 2014 will be saddled with a tremendous amount of student loan debt. A CNN Money article illustrates this, reported that the average student loan debt for college graduates in the United States now sits at $29,400.
A study by the Federal Reserve Bank of New York way back in 2012 revealed that even at that point, more than 10% of graduates owed more than $54,000 in student loans. 3% of them had accumulated more than $100,000 in debt.
These are very disturbing statistics. It is good news, then, that President Obama’s debt relief program offers relief to those struggling to pay off their excessive student loan debt. The program seeks to reduce their financial liability, allowing them to avoid falling into bankruptcy.
The main downside to the President’s program is the fact that only very few people will actually qualify for it. Restrictive eligibility guidelines are dashing many borrowers’ hopes of ever paying off their student loans.
TWO MAJOR BENEFITS OF OBAMA’S STUDENT LOAN REFORMS
President Obama’s plan for loan relief is extremely lucrative for those holding debt that was incurred within the restrictive eligibility window. Those who qualify will receive the following two major benefits:
- Student Loan Debt Forgiveness – After borrowers have made 240 payments over 20 full years that were complete, scheduled, and on time, whatever is left of their student loan debt will be forgiven entirely. It is important to note that the payment threshold is reduced even further to 120 payments for public service workers.
- Introduction of the “Pay As You Earn” Student Loan Repayment Plan – This plan limits monthly federal student loan payments to 10% of the borrowers discretionary income (defined as income above 150% of the poverty line for a borrower’s family size and location)
The total savings from these two simple reforms alone is estimated to be somewhere in the billions. Clearly, there are tremendous benefits for those who qualify.
Previous rules demanded that federal loans be forgiven after the borrower completed 300 full, on-time, scheduled payments across 25 years of payments, but the President’s new plan drops that restriction down to just 240 payments (20 years of payments), which will offer financial relief to many people.
Public service workers such as teachers, nurses, and military personnel will be pleased to note that the plan makes them eligible to have their outstanding balances forgiven after just 120 payments over a brief 10 years of payment.
PRESIDENT OBAMA’S “PAY AS YOU EARN” PLAN
For those who qualify, the PAYE program allows borrowers to schedule their loan payments over a 20 year period of time. This obviously decreases their monthly payment making it affordable to pay and it gives them the flexibility to increase or decrease their monthly payments according to their income. If income goes up, so do the monthly payments.
This really helps those who have a lot of debt, lower incomes and fluctuating income levels. Having a flexible monthly payment as opposed to a fixed one, relieves a great deal of stress for those in the program.