Experts say the Trump 2021 budget is DOA but it is interesting to read some of the points made in it to see what the focus of the Department of Education is when it comes to student loans.
It was interesting to see this admission buried in it, “For example, Federal student loans can be discharged when borrowers die, become totally and permanently disabled, or, under some circumstances, declare bankruptcy.” It certainly feels like more student loans are getting discharged in bankruptcy despite the common misconception it is not possible to do so.
The budget contains both good and bad changes. You decide which impacts you.
The budget hights says: “The Budget protects students by eliminating default for impoverished borrowers and providing expedited loan forgiveness for undergraduate borrowers who make 15 years of responsible payments. In addition, the Budget protects graduate and parent borrowers from racking up crushing debt, often never repaid to taxpayers, by instituting sensible annual and lifetime loan limits. In addition, the Budget closes loopholes currently allowing high-earning graduate-degree holding borrowers to avoid repaying their student loans, leaving taxpayers holding the bag.”
But is silent about the part about eliminating the Public Service Loan Forgiveness program.
The fine print says:
- “The 2021 Budget would replace the five current Income Driven repayment (IDR) plans with one new Single IDR plan to make choosing a repayment plan less complex. The new IDR plan would become the only income-driven repayment plan for borrowers who originate their first loan on or after July 1, 2021, with an exception for students who borrowed their first loans prior to July 1, 2021 and who are borrowing to complete their current course of study. The Single IDR plan would: cap payments at 12.5 percent of discretionary monthly income while eliminating the standard repayment cap; limit loan payments to 15 years for borrowers with undergraduate debt only and 30 years for borrowers with any graduate debt—any remaining amounts owed after these repayment periods would be forgiven; calculate payments for married borrowers filing separately on the combined household Adjusted Gross Income; and eliminate Public Service Loan Forgiveness.”
- “Federal student loans have other benefits. For example, Federal student loans can be discharged when borrowers die, become totally and permanently disabled, or, under some circumstances, declare bankruptcy.”
- “The 2021 Budget proposes to set an aggregate limit on Parent PLUS loans for undergraduate students of $26,500, the difference between the dependent undergraduate aggregate limit of $31,000 and the independent undergraduate aggregate limit of $57,500. In addition, dependent undergraduate students would be eligible to borrow an additional amount (up to the independent undergraduate limit) depending on the parents eligibility for additional borrowing.”
- “Graduate student borrowing would additionally be simplified by consolidating all graduate borrowing under one graduate loan program with the same corresponding loan terms and conditions as current Graduate PLUS loans.”
- “In addition, the 2021 Budget provides higher education institutions greater flexibility to ensure their students avoid excessive student loan debt and are able to repay their loans. As such, the Request proposes to provide financial aid administrators greater latitude to limit loan borrowing and proposes schools be allowed to impose mandatory annual financial literacy training (i.e., loan counseling) in order for students to receive loan disbursements.”
- “To further improve the implementation and effectiveness of IDR, the Budget proposes auto-enrolling severely delinquent borrowers into the Single IDR plan. The 2021 Budget would also eliminate Subsidized Stafford loans.”
The reality is this is currently a wishlist of changes the Trump Administration wants to make. I wouldn’t make any plans based on this budget but it does show the direction the Department of Education wants to take.
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