How the Trump Administration May Reform Student Loans

With more than 44 million student loan borrowers in some stage of repayment, there's a considerable amount of interest in the Trump administration's higher education policies.

The White House announced two months ago its plan to combine the Department of Education and the Department of Labor to form the Department of Education and the Workforce. The proposed merger is in line with Trump's campaign commitment to focus on career and technical education.

This proposal sparked interest in what may be in store for student borrowers. While there's some uncertainty regarding what will take shape, the Student Loan Ranger is here to help you understand where things stand on the policy front.

Let's start with policy that has already become law since President Donald Trump took office. The Tax Cuts and Jobs Act of 2017 went into effect on Jan. 1, 2018. The new law eliminated taxes on the settled portion of federal student loan debt in situations where the balance was forgiven due to a total and permanent disability, known as TPD, or death. Previously, student loan borrowers who were eligible for a TPD discharge had to pay federal taxes on forgiven loans.

 While taxpayers can continue to claim the American Opportunity Tax Credit on their taxes – which allows up to $2,500 per student each year for the first four years of a college education – Congress didn't renew the ability to deduct tuition and fees on itemized tax returns.

Sorting out the rest is challenging, since many proposals and ideas have been communicated on the campaign trail and later from the White House. The Student Loan Ranger can conclude from public records that there's an interest in creating a single income-driven repayment option, increasing funding for career and technical education, reducing federal funding for the Department of Education's budget and eliminating the Public Service Loan Forgiveness program.

Here are a few things to keep an eye on during the remainder of Trump's first term.
PSLF may be discontinued for new borrowers. While Congress passed a spending measure to increase the amount of available funds for PSLF by $350 million, the Trump administration has proposed eliminating the program.

PSLF is a federal government program that forgives the federal loans of a borrower who works in the nonprofit or public sector and has made 120 on-time monthly payments in a qualifying repayment plan. While the program was introduced in 2007, only a few borrowers have met the program's qualifications for loan forgiveness.

In February, the White House presented a 2019 budget proposal that would discontinue the program for new borrowers. Without the option to work in the government and public service sector in exchange for debt forgiveness, there could be a shortage of people interested in these jobs, student loan experts say.

Federal student loan repayment options may be restructured. There are currently eight categories of repayment programs for borrowers under the Federal Family Education Loan Program or William D. Ford Direct Loan Program. The Trump administration proposes to simplify borrowers' choices by creating a single income-driven repayment plan.

Under the proposed repayment plan, monthly installments would be capped at 12.5 percent of a borrower's discretionary income. The proposal would provide debt forgiveness for

undergraduate borrowers after 15 years of repayment; the balance would be forgiven after 30 years of repayment for graduate school debt. Currently, loans are forgiven after 20 or 25 years, depending on the income-driven repayment plan.

No matter the outcome of this proposal, the landscape of available repayment choices currently remains as it was last year. The Student Loan Ranger recommends reaching out to a qualified nonprofit student loan counselor to understand the plan that's best suited to your circumstances.

Borrowers may see changes related to discharging student loan debt during bankruptcy.Earlier this year, the Department of Education issued a request for public comment on evaluating "undue hardship" claims, the standard used to determine if a debt is eligible for discharge in bankruptcy.

Currently, it's left to bankruptcy courts to decide undue hardship for student loan borrowers. The department is evaluating the definition of undue hardship so that borrowers are not "inadvertently discouraged from filing an adversary proceeding in their bankruptcy case."

According to a Wall Street Journal article, some bankruptcy judges are expressing an increased openness to consider guidance on the definition that might provide some additional relief to student loan borrowers.

Because lawmakers haven't clearly defined what undue hardships means, it can be challenging to discharge student loan debt during bankruptcy. Keep in mind that Congress is the gatekeeper for any action taken that leads to reform of the bankruptcy laws.

Prior to any action on this front, the Student Loan Ranger advises borrowers to take the time to review the numerous available income-driven repayment plans and, if moving forward with bankruptcy, understand the implications of a partial discharge that doesn't include student loan debt.

As with the plans of any administration, things can change due to midterm elections or shifting political priorities. It's good to see what might be in store based on the stated intentions of the White House, but the Student Loan Ranger advises borrowers to make decisions and choose loan repayment plans based on the current rules.

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SOURCE: https://www.usnews.com/education/blogs/student-loan-ranger/articles/2018-08-08/how-the-trump-administration-may-reform-student-loans