A lot of people who went to grad school, or who are at least thinking about it, are going to be extremely unhappy if not outright panicked when the Trump administration releases its first detailed budget next week.
As part of its plan to slash the Department of Education’s budget by some $10.6 billion, the Washington Post reports that the White House will propose ending the federal student loan forgiveness program for public sector and nonprofit workers, and lengthen the amount of time Americans will have to spend repaying their debts on income-based plans if they borrowed to get an advanced degree.
Under the Public Service Loan Forgiveness Program, which the administration’s budget would reportedly kill off, student borrowers can currently have their debts erased if they spend 10 years working for a government or nonprofit employer. The program was created in 2007 in order to encourage more Americans to go into public service, but has become more controversial as some have criticized it as a back-door subsidy for expensive graduate degrees—the people who have signed up for so far tend to have high loan balances more typical of someone who went on to get a master’s or a J.D. rather than a mere bachelor’s. In 2015, the Obama administration proposed capping the amount of debt that could be forgiven at the federal loan limit for undergraduates, or $57,500. But Trump and his education secretary Betsy DeVos would go a step further by eliminating it entirely. As the Post notes, it is unclear what that would mean for borrowers currently working their way toward forgiveness.
The White House also reportedly wants to make some major changes to the Department of Education’s income-based repayment options, which cap monthly payments as a percentage of a borrower’s income. The tweaks would essentially help undergraduate borrowers at the expense of graduate students.
Under the current version of income-based repayment, borrowers are expected to pay 10 percent of their disposable income toward their loan balance, which is forgiven after 20 years for people who borrowed for a bachelor’s degree, or 25 years for those who borrowed for an advanced degree. Under Trump’s plan, borrowers would pay 12.5 percent of their income for 15 years if they borrowed for undergrad or for 30 years if they borrowed for grad school.
Now, a disclosure: As Henry Blodget would say, I am conflicted out the wazoo on this topic. My wife is New York City prosecutor who borrowed heavily for law school and is essentially relying on the Public Service Loan Forgiveness Program to retire her debt. Without it, we’ll be paying her loans for an additional 15 years, at least. I absolutely have a personal financial stake in the outcome of this policy debate, which is why I haven’t weighed in on it previously. Unfortunately, I’m also the guy who covers student debt for Slate, and am one of a tiny handful of national journalists who have given this particular issue more than a passing thought. So it’s pretty much up to me to deliver this news for the readers of this site.
With that out of the way, some thoughts: I have argued that, in general, the federal government should charge graduate students as much as it can get away with for student loans, so long as it doesn’t drive them into the arms of private lenders. Graduate students are the main profit center in the student lending program, and given that they tend to vastly outearn other Americans (we are talking about a group that includes lawyers, doctors, and MBAs, among others), there’s no urgent reason to greatly subsidize their educations. The one exception—and feel free to call me self-interested here—should be for public service: In general, Americans pay teachers, public defenders, social workers, and the like pretty terribly, especially considering the educational investment necessary for some of these jobs. Giving them a break on their student debt is one way to make these lines of work accessible to people who aren’t independently wealthy, or at least somewhat appealing to people who could otherwise go work for another corporate law firm.
The PSLF program, as it’s called, isn’t perfect. For instance, a lot of very well-paid doctors who work at nonprofit hospitals are set to benefit from it, even though that wasn’t really the program’s intent. Beyond that, nobody has a really firm idea of what the program will cost—the Government Accountability Office has suggested that 25 percent of Americans work in jobs that could qualify for the program (there are a lot of government and nonprofit workers out there). And while only a few hundred thousand people have submitted “certification” paperwork for the program so far, people can also apply for it once they’ve already hit their 10 years of service. For what it’s worth, the GAO has suggested that Obama’s plan to cap the program would have saved about $6.7 billion; eliminating it entirely would probably save more.
Beyond all that, there are also more modest loan forgiveness programs specifically for teachers and health care professionals who work in high-need areas, including social workers.
And, to repeat, nobody is really sure what killing off PSLF would mean for people who have already borrowed. Here’s how Adam Minsky summed up the issue for the American Bar Association:
… after PSLF’s creation in 2007, the program has been expressly written into Direct federal student loan promissory notes (the contracts setting forth the terms and conditions of Direct program loans). I’ve spoken to several legal experts who believe it might be a contractual violation for the federal government to eliminate a program that is expressly made available by contract. They could eliminate the clause from future contracts, for future borrowers, but not for current borrowers.
So people who planned their financial lives around this program may not need to hyperventilate. And it’s possible Trump or Congress might explicitly look to grandfather in current debtors, if only to avoid a lawsuit.
With all of that said, this still reads like a sick joke. A billionaire president and billionaire education secretary, neither of whom spent a single day of their lives in public service before stumbling their way into positions of immense power, are targeting a program that’s basically meant to make life in underpaid government work a little more tenable. And don’t talk to me about budget savings when this same administration is currently planning a historic tax cut for the rich. If you’re even going to talk about fixing the budget, maybe try balancing it on the back of hedge funders first before sticking it to public defenders.
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