It’s no coincidence the Ringling Brothers shut down this week. There’s a new Greatest Show on Earth.
It’s tremendous. It’s stupefying. Behold, the amazing disappearing student loan forgiveness program. Witness the death-defying Navient — currently being sued by the federal government for ripping students off $4 billion — become the sole federal servicer of student loans. Wipe the drool from your slack jaw as Donald Trump saws federal work-study funding in half and lights the various Obama repayment plans on fire.
There’s no other word for his education budget: It’s a circus. Trump is leading the freak show, and if all goes to plan, I don’t think you’ll enjoy it. Let’s take a tour of each fabulous ring…
Goodbye, loan forgiveness
In Trump’s budget proposal, public service wouldn’t count for much. Under President Obama, if you served the community for a decade as a firefighter, a police officer, a nurse or a teacher you could get your student loan debt completely forgiven.
More than half a million Americans are in line for it already, and an estimated 4 million people are eligible. The first-ever wave of forgiveness under the program was supposed to come this October. But then Trump, who has never performed any meaningful public service in his life, got elected.
I recently worried he would renege on the program after the Education Department offered a wishy-washy excuse in court for why some people might not be eligible — after being told, for years, they were. Those fears were well-founded, but I guess it’s not as bad as it could’ve been.
Trump wants to end the Public Service Loan Forgiveness program starting next year, but anybody already in the pipeline will be considered for forgiveness. Only loans issued after July 1, 2018 would be ineligible. So if you graduate next spring and spend the next 10 years in a full-time public service career, you’re in, probably — but your kid brother is out of luck.
That’s harsh, but at least it’s fair: Nobody will get the rug pulled out from under them. It gets worse, though…
Start paying back on day one
When you take on federal student loans, you always want to take out subsidized loans up to the annual cap before turning to unsubsidized loans. With a subsidized loan, the federal government pays the interest accruing on your debt up through a six-month grace period after you leave school. This keeps the cost of your education from going up while you’re still taking classes.
If it’s not subsidized, you either pay the interest as it accumulates or it gets added to the loan balance — you start owing more and more money from the day you take the loan out, even though you don’t have a degree in hand that’s going to help you pay the money back.
Trump’s budget will kill off subsidized loans entirely. That would completely upend the way we think about paying for college. Student loans would basically function as low-interest credit cards, and we’d start making monthly payments as freshmen to get ahead of our debt.
Like the forgiveness program, this change would only apply to loans going forward from July 2018, but it would be a jaw-dropping change.
Fewer options for avoiding loans
Low-income students trying to get ahead in life usually pay for college through a combination of savings, scholarships, grants, and part-time work during school.
Loans are a last resort, but Trump’s budget would probably increase their student loan debt by halving the amount spent on Federal Work-Study. These are part-time jobs, usually on campus but sometimes with a local nonprofit, aligned to your studies and offered to students with financial need.
Trump’s budget would cut work-study funding from about a billion dollars to $500 million. It also cuts a lot of other little programs entirely. While it maintains Pell Grants, which many Americans rely on — and even begins offering them for summer semesters, an improvement Trump should get a bit of credit for — it doesn’t peg their value to rising inflation. So they become worth less over time, especially if Trump successfully ramps up the economy.
Overall, this budget pushes people toward student loan debt without implementing any new cost controls or accountability from schools.
Fewer options to repay your loans
If you’re struggling to make your student loan payments, you can get help. In addition to the standard repayment plans, there are income-based repayment plans like graduated repayment that let you ramp your payments up as your income increases. You have to meet certain eligibility requirements and do some paperwork, but switching costs nothing.
The federal government isn’t hard up for the money and generally wants you to keep making payments, so they’re pretty flexible. It’s when you stop paying altogether that they worry. (If you have no choice, you should consider applying for forbearance instead of letting your loans default and wrecking your credit.)
That’s not how Trump operates, though. He would cut the five current income-based repayment plans down to a single option, where monthly payments would be capped at 12.5 percent and paid over 15 years. For many people, that would mean higher payments now, with some minor savings in the long run thanks to reduced interest. He announced this proposal during the campaign, which is why I proposed jumping on Obama’s repayment plans in January (and did so myself).
Here’s the big budget justification for this change: “The fiscal year 2018 Budget for the Federal student aid programs focuses on simplifying funding for college, while continuing to help make college more affordable. The Budget includes proposals that address student debt by simplifying student loan repayment and redirecting inefficiencies in the student loan program to prioritize expedited debt relief for undergraduate borrowers.”
See? Making college affordable for you is just plain inefficient and complicated. This way will be much better.
One servicer to rule them all
The federal government currently has contracts with nine private companies to manage our student loan payments. Most people’s loans are assigned to one specific company which is their only point of contact for paying or asking questions about their loan. (Sometimes loans get transferred between them; my loans were originally with Nelnet and are now with Great Lakes.)
Trump wants just one servicer instead of nine. To announce the single servicer model, Education Secretary Betsy DeVos penned an editorial for The Wall Street Journal called “Treating Students as Customers.” She said it should lead to “improved times for email responses and phone-call waits.” Um, math?
The largest student loan servicer, Navient, handles more than $300 billion in student loans from 12 million consumers. That’s roughly a quarter of all student loans. Even if Navient were able to quadruple its workforce to take on the new load, it wouldn’t happen overnight. For any other servicer, it would be an even more dramatic scale-up.
But let’s ignore the problem for a moment, and wave away that bizarre statement. (And let’s also ignore the fact that a top Federal Student Aid official resigned in protest to DeVos’ nonsense.) Here’s another one. “This is another example of President Trump’s commitment to put students first, improve the functionality of government, and protect taxpayers. Students will now be treated as valued customers and afforded the protections and respect they deserve,” DeVos concludes.
Navient is one of only four student loan servicers that have submitted a proposal for the new contract, and the best-equipped to handle the volume. But the federal government already thinks Navient has a pretty funny idea of customer service.
In the past, the Education Department even dropped a subsidiary of Navient as a student loan debt collector because of consumer complaints. And in January, the Consumer Financial Protection Bureau sued Navient for “systematically and illegally [failing] borrowers at every stage of repayment” and allegedly ripping us off to the tune of $4 billion. Illinois and the state of Washington also sued.
The Trump budget says “simplifying funding for postsecondary education” is “empowering” to parents. It’s hard to see how. All told, Trump’s education cuts would “save” approximately $143 billion over 10 years. But save who? It’s really just dumping the burden of debt onto the people who can least afford it, and forcing them to deal with an overworked, impatient, and hardly capable loan servicer.
Fortunately, this is all just a show. None of it’s real yet, and it probably won’t be — unless the elephants in Congress make it so.
Article last modified on August 8, 2017. Published by Debt.com, LLC .