President-elect Donald Trump’s victory last week should bring some clarity to Americans with student loan debt, but perhaps not in the way they expected.
A flurry of efforts by the Biden administration and court rulings have left millions of borrowers worried about future payments. In fact, many federal student loans are stuck with no monthly payments because the companies servicing them can’t determine payment amounts.
President Trump has made his distaste for student loan relief clear, saying it is unfair to borrowers and taxpayers who are paying off the debt in full. Adding to the uncertainty, President Trump has said he wants to abolish the Department of Education, which oversees student loan policy, a goal shared by many Republicans.
The bottom line is that the Biden administration’s efforts to reduce the debt burden are likely to come to nothing in the short term. President Biden succeeded in forgiving huge amounts of debt for a huge number of borrowers during his term, providing approximately $175 billion in relief to nearly 5 million borrowers. But the pendulum is about to swing sharply in the other direction.
Here’s a summary of Biden’s major student debt relief efforts:
Current debt relief programs
In July 2023, the Department of Education launched the first component of the “Save for a Precious Education” repayment plan to reduce federal student loan payments and forgive low balances more quickly. Like some other repayment plans, SAVE allows borrowers to pay 10% of their discretionary income each month for 20 to 25 years, at which point the remaining balance is forgiven.
But it increased the amount of income considered non-discretionary by 50%, immediately lowered monthly payments, and waived interest accrued while borrowers were in their current state. From July 2024, payments will be significantly reduced to 5% of discretionary income.
By mid-2024, 8 million borrowers participated in SAVE plans. Seven Republican state attorneys general filed a lawsuit. On August 9, the Eighth Circuit Court of Appeals issued a decision temporarily blocking the entire plan. In other words, there is no payment reduction or loan forgiveness.
The three-judge panel unanimously found that without clear direction from Congress, the Department of Education has no authority (according to the panel) to so dramatically expand the scope and cost of loan forgiveness. 3,000% increase).
Assuming the Trump administration abandons the SAVE plan, borrowers enrolled in the plan would have to move to an alternative repayment plan with significantly higher monthly payments. In one example provided by the department, a single person with an annual income of $40,000 and $45,000 in debt would see payments increase from $60 in the SAVE plan to $151, $227, or $349, depending on the plan chosen. will increase.
However, the commission’s decision did not only affect the SAVE program. The Eighth Circuit’s decision also calls into question the legal basis for loan forgiveness in two other income-driven plans: income-contingent repayment and pay-as-you-earn. A future administration could decide that these borrowers are obligated to pay their outstanding balances with interest even after making the required number of monthly payments.
These borrowers may switch to other repayment plans where the legal basis for loan forgiveness is not in dispute, but costs may rise.
According to the National Assembly, the Ministry of Education no longer allows borrowers to enroll in ICR and PAYE plans, but continue to enroll in SAVE, even though monthly payments have been suspended until at least April 2025. It is possible. of student aid administrators. The Department of Education says forgiven loans will not accrue interest, but will not bring you closer to forgiveness.
The ruling does not affect the Public Service Loan Forgiveness Program, which wipes out loan balances for 10 years for borrowers who work in government or certain nonprofit organizations, or income-based repayment plans, which forgive loans after 20 to 25 years. Ta. Payment amount (depending on when the borrower registered).
During his first term, Trump sought to repeal the civil servant exemption program, but that would require an act from Congress. The same is true for income-based repayment plans, which have the same legal basis: the College Cost Reduction and Access Act, signed into law in 2007 by President George W. Bush.
Comprehensive loan forgiveness proposal
Shortly after the U.S. Supreme Court rejected Biden’s initial proposal to forgive up to $20,000 in student loans, the Education Department began developing a less sweeping proposal for blanket debt forgiveness and debt reduction. . The draft rules would cancel debt for borrowers who have been making payments for at least 20 to 25 years and wipe out interest-related debt for certain borrowers, but like the SAVE plan, seven Republican state attorneys general Objection was lodged. The department claimed it was overstepping its authority.
A federal judge in Georgia temporarily blocked the rule two days after the lawsuit was filed. When that order expired, a federal judge in Missouri blocked it again.
Missouri’s Republican Attorney General Andrew Bailey summed up the plaintiffs’ argument for debt forgiveness in a tweet: “This is a huge victory for all Americans who will no longer have to pay someone else’s Ivy League debt,” Bailey wrote. he wrote.
Similar to the lawsuit over the SAVE plan, the Department of Education is expected to stop defending the draft regulations under the Trump administration. It also authorizes the second element of a new forgiveness plan currently in development, which would allow the department to forgive debts if the borrower is in financial hardship and most likely to default within two years. They are also not expected to uphold the rules.
Loans that have already been forgiven or modified
Experts say borrowers whose loans have already been forgiven will not be affected by the policy bought by the Trump administration. And thanks to accounting adjustments ordered by the Biden administration, many borrowers enrolled in the Public Service Loan Forgiveness program are much closer to their repayment deadlines.
These adjustments, such as giving some borrowers credit for years of delinquency, are in the name of correcting what the government says are misrecord-keeping, poor management, and predatory practices by the companies that provide federal student loans. It was held in
The same adjustments will apply to other income-driven repayment programs, bringing these borrowers closer to loan forgiveness. However, the Eighth Circuit’s decision casts doubt on whether borrowers in the PAYE and ICR programs are ultimately eligible for debt forgiveness.
The possible end of the Department of Education
The president cannot unilaterally kill branches of the federal government. That would require a vote in Congress and considerable work to determine which tasks should be taken over by other agencies and which should be left to the states.
Abby Shafroth, co-director of advocacy at the National Consumer Law Center, said transferring control of the lending program to the Treasury Department “runs the risk of creating significant disruption for borrowers just because of the process to make that change.” ” he said. However, any changes to repayment rights and options will depend on policy changes made through new laws and regulations, he said.
Natalia Abrams, founder and president of the Student Debt Crisis Center, said the bigger concern is the transition from an administration that is concerned about student debt burdens to one that is not. He said his organization and other nonprofits met regularly with officials from the Biden and Obama administrations to get updates on student loans, but only once with the Trump administration.
Abrams pointed to previous proposals from Republican leaders and conservative think tanks, saying that while Republicans have expressed interest in overhauling the lending system and eliminating opportunities for debt forgiveness, “that doesn’t mean that people are going to suffer for decades to come.” “They will continue to have student loan debt for many years to come.”
