As with almost anything President Trump does, the release of his proposed budget was met with sturm und drang by the media, who immediately deemed it as the next step toward inevitable Armageddon. The budget’s implications for student loans is a perfect example.
Take this analysis dose of hyperbole, courtesy of Business Insider:
President Donald Trump unveiled a budget plan Monday that appears to put a slew of loan forgiveness programs in peril.
The proposed budget would dismantle the Public Service Loan Forgiveness Program, a plan which helps individuals with jobs in government or for a tax-exempt nonprofit organization pay off their loans, and would change the number of years and amount that students must pay back loans under loan forgiveness programs, which are set up to help individuals whose loan payments are more than 10% of their discretionary income.
The programs in question were developed to help borrowers struggling under insurmountable debt and to incentivize individuals to enter into low-paying, but essential jobs.
Yikes. With words like “peril” and “dismantle” and “insurmountable,” you’d think that the president’s budget was akin to tossing college kids in a debtor’s prison, throwing away the key, and then laughing maniacally at the brilliance of his plan.
But those harsh words mask what Trump’s budget really does for students; namely, put more money in their pockets.
The biggest policy change it makes is allowing undergraduate borrowers who use the income-based repayment program to quality for loan forgiveness after 15 years of payments. Currently, students must pay 20 years before becoming eligible.
That’s an enormous change, and in order to pay for it,Trump’s budget does several things. First, it asks borrowers to pay a little more each month, 12.5 percent of discretionary income as opposed to today’s 10 percent. Second, it removes the subsidized class of Stafford loans, which means that interest accrues to the principal while students are in school. And third, graduate students would not qualify for loan forgiveness for 30 years, up from 20 years currently.
With changes like this, the impacts on individuals will vary based on their circumstances, but don’t lose sight on the basic change: Most undergraduate borrowers will benefit tremendously as a result of these changes.
To see how much, the left-leaning Brookings Institution ran some numbers. The first scenario involved an average borrower who has $15,000 in Subsidized Stafford loans and and earns $20,000 with a four percent annual raise. This borrower, they found, would pay $15,602 in today’s policy structure, but just $10,954 under Trump’s proposal. The savings grow tremendously for those who borrow more and earn more. For instance, Brookings found that a borrower with $40,000 in federal loans and an initial income of $35,000 with a four percent annual raise would make $60,269 in payments under current policy, but $48,498 under the new proposal.
To be clear, graduate students would generally be worse off under this approach, but that’s somewhat intentional. As the Brookings Institute writes:
The case for providing a safety net to borrowers through IBR is sound, but the current IBR program goes far beyond that goal in the benefits it provides to graduate students. Graduate students already have a four-year college degree, which makes them a relatively elite group. Providing subsidies for graduate educations skews benefits to upper middle-class families while low-income families still struggle to finance an undergraduate education.
The current IBR program is also likely to distort prices for graduate school and decisions students make about how much to borrow. The Trump proposal addresses these issues by removing the perverse incentive graduate students currently have under IBR to borrow more rather than less.
This re-prioritization makes a lot of sense. It focuses benefits on a class of borrowers who need it most while reducing taxpayer-funded subsidies for the generally well-off. That should be easy for the left to get behind. But instead, we get the typically reflexive doom and gloom that we’ve come to expect during the Trump presidency. Hopefully students will do their own homework (and math) before joining the chorus of criticism.