Forgive me in the Street – Philadelphia,” Paul Sableman

February 10, 2020; Forbes

Every year, NPQ struggles with the question of whether or not to cover the president’s budget. The reality is that it often simply serves to signify the White House’s priorities in the longer course of budget setting. In fact, this year, even the Republican Senate Budget Committee won’t hold a hearing on it.

Still, a proposed federal budget for Fiscal Year 2021 has been released by the White House. It contains a significant decrease in the investment in education, down 7.8 percent from this year. Other changes to various initiatives include what has become an annual threat to eliminate the Public Service Loan Forgiveness (PSLF) program, which forgives student loans after 120 timely payments from those employed full time for a nonprofit, teachers, and other qualified public service positions.

For those paying back their student loans through PSLF who are starting to panic, the proposed budget would “only” abolish the endeavor going forward, and so should not affect those in the program already. However, neither does it address the program’s poor track record, nor does it address the non-negotiable high interest on those loans.

The amount of student debt in the US is over $1.6 trillion dollars. That is twice the annual budget for the Department of Defense, and it has been spiraling higher and higher in the almost 50 years since the Higher Education Act of 1972 assured banks that student loans would be guaranteed by the government. One in six individuals in the US has a student loan.

The president’s 2021 budget does not mention cancelling student loans, although it has become a popular speaking point on the presidential campaign trail. It does advocate the following:

  • Undergraduates get federal student loan forgiveness after 15 years.
  • Annual and lifetime student loan limits for graduate students and parent borrowers
  • The elimination of subsidized federal student loans, along with public service loan forgiveness.
  • Expanded eligibility for Pell Grants

It also provides discretionary funding for historically black colleges and universities and supports the borrower defense to repayment rule intact. There have been issues with the borrower defense rule, leading to lawsuits that charge that applications for relief have been stalled and ignored, and that the Department of Education must cease in garnishing wages for those who refused to pay their loans for fraudulent colleges. (The Department of Education lost both lawsuits in November of 2019.) The rule underwent changes in 2019, including “borrowers will need to show that their school committed fraud ‘with knowledge’ that the claims were deceptive and prove that they experienced financial harm as a result.” The budget supports it intact.

The budget aims to continue the president’s goal of reducing the many federal student loan plans to a single repayment plan that would cap the monthly payments at 12.5 percent of an individual’s discretionary income. The proposed income-based repayment plan would forgive loans sooner than current plans by five to ten years.

Parent PLUS loans have high interest rates, about 7 percent, punishing the parents and grandparents assisting the students. Graduate students also access PLUS loans with a high interest rate. The proposal puts a cap on those loans, protecting those borrowers closer to retirement age from taking on more debt than they can handle. It should be noted that those loans can be refinanced at a lower interest rate, unlike the PSLF program loans. Finally, those subsidized student loans that do not charge interest while the student is in school will be eliminated.

Congress will now work the budget over and determine, among the other issues, if the PSLF will survive.—Marian Conway

Disclosure: The author is halfway through the PSLF program.