Federal Student Loan Repayment Under the Second Trump Administration
While no plans have been announced by Donald Trump or Linda McMahon, a few existing programs are likely to undergo changes.
What Will Federal Student Loan Repayment Look Like Under the Second Trump Administration?
– By Steven Chung on November 27, 2024 at 12:16 PM
With President-Elect Trump returning to the White House in January, borrowers repaying their loans are wondering what will happen next. His first Secretary of Education Betsy DeVos was not known for being friendly or receptive to borrowers, and getting loan forgiveness was like pulling teeth.
Trump recently announced that he would nominate Linda McMahon to be incoming secretary of education. She was the head of the Small Business Administration during Trump’s first term and was a member of the Connecticut State Board of Education in 2009. She also survived the Stone Cold Stunner. But no one knows her position on student loans.
While no plans have been announced by Trump or McMahon, a few existing programs are likely to undergo changes.
The SAVE Repayment Program Is Likely To Be Terminated
President Biden introduced a new income-driven repayment plan called Saving on a Valuable Education or SAVE. This was in response to the Supreme Court’s overturning of his executive order which would forgive up to $20,000 of a borrower’s federal student loan.
The SAVE plan would replace the Revised Pay As You Earn (REPAYE) plan. It would cap the monthly payment based on income and family size. Also, if the monthly payment was not enough to cover the interest accrued for the month, the accrued amount would be forgiven. Borrowers with smaller balances (usually by attending community colleges) can have their loans forgiven in as little as 10 years.
But Republican-led states filed lawsuits in response and last August, the Eighth Circuit Court of Appeals struck down the SAVE program. People currently in the program have been placed in forbearance status although the time spent in this status does not count toward loan forgiveness. The Trump-led Department of Justice is likely to let this ruling stand and take no further action.
If SAVE is not saved, then borrowers will be placed in a standard repayment program or on the REPAYE income-driven repayment plan.
Borrower Defense To Repayment Rules May Change Yet Again
The Borrower Defense to Repayment (BDR) program allows for loan forgiveness if applicants can show that they attended their schools based on false or misleading information.
Over the years, BDR rules and regulations have changed usually when a new administration takes office and legal challenges added further complexity. But to summarize, any BDR application submitted before July 1, 2020, was to use the regulations promulgated under the Obama administration. Any applications submitted after that date would be subject to different regulations established under the Trump administration. It is believed that the Trump regulations made it more difficult to obtain loan forgiveness through BDR.
In 2022, the Biden administration’s Department of Education proposed new BDR relief regulations which were believed to make it easier to obtain loan forgiveness. But this has also been subject to a court challenge, and an injunction is in effect until the case is resolved. But the department states that borrowers can still apply for BDR relief while the injunction is in effect.
If the BDR regulations under Biden are struck down, then the government under Trump may decide not to appeal the decision.
For now, whether the Biden regulations or the older Trump regulations will apply to current BDR applications is unclear. It is also possible that the Department of Education under McMahon or another Trump appointee could propose new regulations, although they are likely to make BDR eligibility more difficult.
Borrowers who think they could be eligible for BDR loan forgiveness should apply as soon as possible even though it is possible that their applications could be reviewed under a more difficult standard. They have nothing to lose by applying as the worst that can happen is that the application will be denied.
Also, those who apply earlier may have a better chance of getting a favorable decision if they apply before the floodgates are opened. For example, in 2022, the federal government accepted a settlement where BDR applicants who attended certain schools would be eligible for full loan forgiveness under a very lenient review standard if they applied before the settlement date. But applications received after the settlement date will be subject to a different and more difficult standard of review.
Forgiveness Under The PSLF Programs Might Be More Difficult
Borrowers who are enrolled in the Public Service Loan Forgiveness (PSLF) program should make sure that their eligibility status is not in jeopardy and take advantage of any regulations set by the current administration.
In 2018, it was reported that 99% of PSLF loan forgiveness applications were denied. Also, in 2017, Trump proposed eliminating PSLF in his budget proposal.
During the Biden administration, the Department of Education issued a number of regulations that made more borrowers eligible for PSLF.
Even though Republicans will control the presidency and both houses of Congress, it is unlikely that PSLF will be repealed. Even if it is repealed, it is unlikely to be applied retroactively. However, it may be adjusted so that only a limited amount of loans will be forgiven. For example, President Obama suggested a capping the forgiveness amount at $57,500 in 2014.
Borrowers who anticipate getting loan forgiveness between 2025 and 2029 should keep an eye on their student loan account balance on a regular basis. They should also make sure that all of their employer certifications are submitted on time. Lastly, they should obtain all news alerts involving PSLF.
You Will Still Have To Pay Your Loans If The Department Of Education Is Abolished
Even though Trump has said that he would abolish the Department of Education, it is a long shot. But even if the department folds, it does not mean a wholesale cancellation of federal student loans. Student loan repayment servicers will probably continue to collect from borrowers, but they will answer to another department, most likely the Treasury Department.
Until Trump or McMahon releases more details, it is safe to assume that borrowers will have to pay more than what they were paying before for at least the next four years. Also, those who are delinquent on their loans or are in default will not be given the kid gloves treatment anymore. People with tight budgets should do some financial planning as soon as possible. And to those who could be eligible for student loan forgiveness in the next four years, make sure to dot every “i” and cross every “t” so the government will not have an excuse to deny your forgiveness application.