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Proposed Federal Budget Affects Student Loans

President Donald Trump released his administration’s budget proposal for the 2020 fiscal year on Monday, titled “A Budget For A Better America: Promises Kept. Taxpayers Saved.” The proposals include increased defense spending, homeland security, veterans affairs, and commerce, which are offset with significant cuts across the board, including a 12-percent decrease in education spending—which could greatly affect student borrowers.

Under the proposals for education spending, the conditions for colleges and universities receiving federal funding would change. The proposals mandate the institution of a student loan risk-sharing program for recipients as well as expand debt relief to all borrowers and streamline the repayment process. The proposal additionally asks for expanded Pell Grant eligibility for short-term programs in fields with high labor demands, although the program will see its funding reduced.

Pell Grants, like student loans, are federally provided funds given to students who need assistance paying for college. Unlike student loans, however, Pell Grants generally do not require repayment. The changes would allocate Pell Grants to students in short-term education programs, a departure from the current process which provides Pell Grants only for four-year undergraduate programs.

As part of the student loan reforms, the administration would eliminate the Public Service Loan Forgiveness program. The current program offers loan forgiveness after 10 years only to federal and non-profit employees. With the elimination of the program, loan forgiveness would be expanded to all borrowers, but the timeline would be five years longer for undergraduate borrowers.

The current system offers a variety of repayment plans, but the proposals would consolidate them into one income-driven repayment plan. The plan would cap payments at 12.5 percent of discretionary income for undergraduate borrowers, and the remaining balance would be forgiven after 15 years. For graduate borrowers, balances would be forgiven after 30 years. The change would have different impacts on borrowers: While it is a reduction from 15 percent of discretionary income for some borrowers, others who currently pay 10 percent would see their payments increase.

The student loan risk-sharing program for colleges and universities accepting federal funding would force colleges to share some of the costs for defaults on student loans. The proposal’s aim to increase institutional accountability, claiming that “some postsecondary programs fail to deliver a quality education that enables students to repay Federal student loans—leaving borrowers and taxpayers holding the bill.” The program would be an effort to better prepare students for the job world and thus improve their ability to repay loans, as schools would then have hard financial incentives to keep students from defaulting on their loans.

The student loans program is widely recognized as in need of reform, but there are concerns that the reforms to the program are inadequate, and the proposals overall have been met with heavy resistance. Despite the reforms, the education budget would still be cut by nearly $9 billion, a move that critics say will substantially hurt the state of education in the country.

Ted Mitchell, president of the American Council on Education (ACE), released a statement siding against the proposals, characterizing the cuts as “draconian.” ACE is an organization that represents colleges and universities. The release noted that, in contrast to the Trump administration’s consistent request for cuts, Congress has steadily increased funding for student financial aid.

“This is the third year in a row that the Trump administration has proposed to walk away from adequately investing in student financial aid and incredibly important, life-saving biomedical research,” the release said. “If enacted, the president’s proposal would cut over $200 billion in federal student aid and also cut billions more in funding for the National Institutes of Health and the National Science Foundation, threatening the well-being of our nation’s students and citizenry.”

It’s unlikely that the proposals will pass, at least in their current form, as Democrats retain control of the House of Representatives. In a sign of how Democrats are likely to respond to the proposals, Senate Minority Leader Chuck Schumer (D.-N.Y.) railed against the proposals on the floor of the Senate.

“It says, ‘promises kept.’” Schumer said. “That’s one of the biggest lies I’ve ever seen, because if you look at the booklet, it’s promises broken,The president said that education is the civil rights of this generation. … Promises kept? The president cuts education dramatically.”

Featured Image Courtesy of Wikimedia Commons

March 19, 2019