Discover what President Trump’s Tax Cuts & Jobs Act and his 2019 budget proposal means for student loan forgiveness and repayment options.
When President Donald Trump took office in January 2017, many student loan borrowers wondered how their loans would be affected by the administration’s policymaking. Later that same year, President Trump announced new legislation that would authorize several student loan changes in 2018.
Known as the Tax Cuts & Jobs Act of 2017, the legislation was passed on November 16th, 2017 by the U.S. House of Representatives, then was signed into law by President Trump right before the year ended.
With the legislation now put into law, and President Trump’s budget having been released to the public, you may have questions about how the Tax Cuts & Jobs Act will impact student loans, as well as how Trump’s budget affects student loan forgiveness options down the road.
Find out how the Tax Cuts & Jobs Act and President Trump’s budget could impact student loans by filling out our free online form or speaking to a student loan specialist directly at 800-771-6358.
How the Tax Cuts & Jobs Act Affects Student Loan Borrowers
The Tax Cuts & Jobs Act underwent significant changes before getting signed into law. Here are some of the proposals that were part of the original bill, along with information on whether or not they were included in the final version.
American Opportunity Tax Credit
The American Opportunity Tax Credit was originally signed into law by former President Barack Obama as part of the American Recovery and Reinvestment Act of 2009. In 2017, President Trump looked to improve student tax credits as part of the Tax Cuts & Jobs Act, with one of them being the American Opportunity Tax Credit.
Essentially, the act would have allowed qualified borrowers to apply the same $2,500 deduction to their taxes for the first four years of college, along with an additional $1,250 for the fifth year of eligibility. However, before the act was signed into law, this provision was removed from the legislation.
Lifetime Learning Credit
The Lifetime Learning Credit gives qualified students a tax credit of up to $2,000 each year to help with tuition and college-related expenses while enrolled at an eligible educational institution. Unlike the American Opportunity Tax Credit, the Lifetime Learning Credit can be used every year you attend college, as long as you and your school meet eligibility requirements.
Fortunately, as part of the Tax Cuts & Jobs Act of 2017, student loan borrowers will still have access to this valuable yearly tax credit to help pay for college expenses after it was removed from the final document signed by the President.
Student Loan Interest Deductions
Another expected change from the Tax Cuts & Jobs Act was the elimination of interest deductions on student loans in 2018. Currently, over 12 million Americans take advantage of these deductions annually.
While the student loan interest deduction measures were ultimately eliminated from the final tax bill, many borrowers fear it could become an issue later on, when new legislation is issued.
Graduate Tuition Waivers
One of the benefits of attending graduate school at some colleges and universities is the ability to work on campus in exchange for a graduate tuition waiver. This allows students to continue their studies, while having some or all their tuition waived as long as they meet certain requirements.
While the IRS hasn’t considered tuition waivers as taxable income in the past, the Tax Cuts & Jobs Act sought to change that by having the IRS look at these waivers as fully taxable. However, a coalition of lawmakers disagreed with the measure, and had it removed before the final tax bill was signed into law.
Lock in your ideal student loan repayment or forgiveness program now by filling out our free form or getting assistance from a student loan specialist by phone at 800-771-6358.
How President Trump’s 2019 Budget Proposal Could Affect Student Loans
In February 2018, President Trump released his budget proposal for the next fiscal year of 2019. In the budget, President Trump focuses on reforming three existing student loan programs that include income-driven repayment plans, the Public Service Loan Forgiveness (PSLF) program, and subsidized student loans. Here’s how each of these programs could be affected in 2019.
Income-Driven Repayment Plans Under Trump’s Budget
Today, student loan borrowers have access to a number of income-driven repayment plans that offer a variety of payment options and benefits. As they stand now, these benefits include having monthly payments capped at 10% of discretionary income, as well as loan forgiveness after 20-25 years of qualified payments.
These plans include:
- Income-Based Repayment (IBR)
- IBR for New Borrowers
- Income-Contingent Repayment (ICR)
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
To help streamline repayment options for new borrowers, President Trump’s budget contains a provision that would eliminate most, if not all of the repayment plans currently available. Instead, borrowers would have a single repayment option that caps monthly payments at 12.5% of discretionary income and reduces the length of time it takes to have student loans forgiven to just 15 years.
So, while student loan payments for undergraduates may be higher under Trump’s 2019 budget proposal, they can also obtain forgiveness five years earlier than in other income-driven repayment plans.
The End of Public Service Loan Forgiveness
As it stands today, the Public Service Loan Forgiveness (PSLF) program gives public sector and non-profit employees who qualify for the program the ability to have their student loans forgiven after they’ve made 120 on-time, consecutive monthly payments.
How will President Trump’s budget impact Public Service Loan Forgiveness? Rather than modifying or simplifying the program, Trump would eliminate the PSLF program entirely, in the hopes that it would save taxpayers anywhere from $100 to $200 billion annually.
One thing to note, however, is that the PSLF program was created in 2007 by an act of Congress, so it would require a second act of Congress – or a bill being passed on Trump’s 2019 budget for higher education – to have it removed as a student loan forgiveness option.
Subsidized Student Loan Reforms
For the most part, anyone who is approved for federal student loans from the U.S. Department of Education receives a subsidized loan. One of the benefits of these types of loans is that they won’t accrue interest while the borrower is attending school full-time, and payments only begin after the borrower has left college to pursue a career or other interests.
If President Trump’s budget proposal is enacted, however, subsidized loans would be done away with completely, meaning any new federal student loans being issued would start building interest from day one.
Supporters of this proposal believe the benefits outweigh the disadvantages, pointing out that not only would borrowers earn loan forgiveness earlier than with existing loan programs, they would also be off the hook for origination fees as part of the Trump administration’s PROSPER Act. Critics, however, claim the accruing interest would negate these benefits by increasing the cost of college for people who already face income-related challenges.
For now, Trump’s budget is merely a proposal, so it may be adjusted heavily before any changes to student loans in 2019 occur. Only time will tell if these plans are put into action and ultimately help or hurt student loan borrowers down the road.
A Complete List of Trump’s Student Loan Forgiveness amendments to date:
Here you’ll find the latest news and information on changes to student loan forgiveness and repayment options by the Trump administration.
Public Service Loan Forgiveness (PSLF) Program
In an unexpected move by the White House, President Trump signed the $1.3 trillion omnibus spending bill, which has $350 million allocated specifically for the Public Service Loan Forgiveness (PSLF) program.
Not only will the Department of Education receive funding for the PSLF program, but the bill also gives borrowers who were ineligible for the program in the past the ability to apply. This includes borrowers who have extended or graduated repayment plans, versus the income-driven repayment plans that were previously the only types of loans eligible for the program.
Now operating on a “first-come, first-served” basis, the PSLF program will be accepting new applications over the next six months as funds become available to the Education Department and is then dispersed to borrowers.
If you’re someone who may qualify for the PSLF program, contact us for a free assessment and assistance in processing your application immediately.
Total & Permanent Disability (TPD) Discharge
In April 2018, the Department of Education announced a partnership with the U.S. Department of Veterans Affairs. Working together, the two agencies plan to simplify the Total and Permanent Disability (TPD) Discharge program by notifying disabled veterans who likely qualify for the program to sign up.
The TPD Discharge program gives disabled veterans – and other disabled borrowers who qualify – the ability to obtain forgiveness on most federal student loans, including Direct Loans, Federal Family Education Loans (FFEL) and Federal Perkins Loans.
Another change to the TPD Discharge includes making any balances forgiven through the program untaxable by the IRS. Prior to the new initiative, anyone who was approved for the program would be required to pay taxes on the forgiven amount the following year. Now, disabled veterans can eliminate their student without the tax burden, and save even more money through the program.
Please visit our Permanent Disability Discharge section for more information.