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Student loans are designed to help those who are eager to hit the books to find the funds to actually do it. Nowadays, over 44 million students repay the loans they took out at some point of their studying. Given the upcoming merger of two Departments into a single Department of Education and the Workforce, there is no doubt that students will be the target audience of new amendments that may follow.
With so many people involved in the system, it is clear that the changes that the Trump administration has made to the tax system and is planning to make are a matter of great concern to most Americans.
How has the student loan system already been altered?
In January 2018, a new law regulating taxes went into effect. It is a document called Tax Cuts and Jobs Act of 2017, which rendered the old practice of putting a tax on forgiven loans in case of death or TPD, which is an abbreviation for total and permanent disability, invalid.
The other one–and there have been only two major changes to students loans recently–is the withdrawal of the ability to deduct fees and tuition, as far as itemized tax returns are concerned. Claiming AOTC on taxes is still possible, which can save you as much as $2,500 per year during the first four years, but the change can be a warning sign.
What awaits students?
As to the changes that may be on the cards, it is not that easy to figure out what particular amendments can be made to the current law and policy. As is the case with many other things political, it is not a very stable field.
There are several tendencies regarding the possible changes to student loans, and these include the following:
- Possible PSLF program elimination
- Career and technical education funding is increasing
- Conversely, the funds allocated for the Department of Education are being reduced
- Judging from the public records available, it is clear that the White House is considering introduction of a repayment option that would be income-driven and, perhaps most importantly, single
Goodbye to PSLF?
The abbreviation stands for a federal program that enables those working in the public or non-for-profit sector have their federal loans forgiven, provided they have made 120 payments in due time within the framework of their repayment plan that qualifies.
It may seem to be unreasonable to expect the program to be eliminated, since its funding has recently been increased by $350 million, but it is the Trump administration itself that has made it clear it would support its abolition.
In their proposed budget for 2019, it is stated that PSLF can be discontinued and thus unavailable for new borrowers. Such a move would make jobs in the public sector or the government less attractive, as nowadays many people are driven to join them by the alluring opportunity to use the debt forgiveness program.
Restructuring of repayment options
The Trump administration is considering a substitution for the current repayment programs (which now amount to eight options) that would be income-driven and single. The proposal implies capping monthly installments at 12.5% of a person’s discretionary income. Those borrowers who are undergraduate students will be forgiven their debt if 15 years of repayment have passed. For graduate school debts, the figure is increased to 30 years. As of this moment, the conditions are different: depending on what plan it is, a loan is forgiven after either 20 or 25 years.
Some changes may also be made to discharging loans during bankruptcy. It is the definition of “undue hardships” that is expected to be reevaluated, as it is now not clearly defined, which makes discharging loan debts quite challenging.
Since many proposals are still hanging in the balance, it is advised to choose the plans currently available and consult professionals should any changes be made to the legislation regulating student loans in the future.
