Changes to Student Loan Forgiveness Trump Proposed: Here’s How it Impacts You

The race for the 2024 election is heating up. President Biden has unveiled his “Plan B” student loan forgiveness plan and pushed through many beneficial student loan initiatives, such as the new SAVE plan, PSLF Waiver and IDR Waiver. But former President Donald Trump made a few student loan changes and proposals himself during his time in office.

Trump’s student loan forgiveness changes began with the passing of the Tax Cuts and Jobs Act in December 2017. He also signed an executive order to suspend federal student loan interest and payments, which was extended multiple times by both the Trump and Biden administrations.

But Trump’s 2020 budget and 2021 budget proposed even bigger changes — including the consolidation of income-driven repayment plans and the elimination of Public Service Loan Forgiveness. That said, Trump lost the 2020 presidential election, so many of his proposals were never put into action. But with the upcoming 2024 election, student loans are back in the spotlight.

This guide covers all the changes to student loan forgiveness Trump made, including his prior proposed changes and what we can expect if Trump wins a second term this time around.

Changes to student loan forgiveness under Trump

The Trump administration passed its Tax Cuts and Jobs Act in 2017, which included two student loan-related changes.

Total Death and Disability Discharge no longer taxable

When borrowers with federal student loans are permanently disabled, they can receive student loan forgiveness through the Total and Permanent Disability Discharge (TPD) program.

Previously, forgiveness through this program was treated as taxable income. But the Tax Cuts and Jobs Act changed that.

This is good news for disabled borrowers. Imagine that you received $50,000 of forgiveness through TPD. Even if you were only in the 12% tax bracket, that would generate at least a $6,000 tax bill.

Coughing up a chunk of change that large would be tough at any time, but especially when you aren’t able to work. This simply wasn’t fair, and it’s great that the rule has been changed.

It’s important to note, though, that the law isn’t retroactive. Only loans forgiven on or after Jan. 1, 2018, qualify.

Tuition and Fees Deduction no longer available

The Tax Cuts and Jobs Act eliminated the Tuition and Fees Deduction. Before it expired, you could use this deduction for certain school expenses. Enrollment fees, tuition, course books and lab fees were examples of qualifying expenses.

It’s a bit of a bummer that this deduction is no longer available. But several other popular student loan tax programs remain unchanged. The American opportunity tax credit, Lifetime Learning Credit and student loan interest tax deduction (for now) are still available under the current tax code.

What happens to student loans if Trump wins the 2024 presidential election?

If former President Trump wins the upcoming election, it's likely that he'll pass an executive action to overturn President Biden's SAVE plan and replace it with a GOP-favored income-driven repayment plan.

The House GOP has already put forth a new IDR plan proposal: the College Cost Reduction Act (CCRA). Here are some key highlights from the proposed CCRA IDR plan:

• It would have the same interest subsidy as SAVE, but it would also include principal subsidies if your IDR payment is less than two times the interest.
• There would be no time-based forgiveness.
• The IDR payment calculation would revert back to 150% of the poverty line versus 225% with the SAVE plan.

We don't know exactly what Trump has planned for student loans at this time, but it's safe to assume that he'd move forward with making his own IDR plan.

Trump’s previous student loan proposals

We can take a look at where Trump stood on student loans before leaving office to get a general feel of where he might focus efforts in the future.

If Trump's 2020 budget was approved the way he proposed, it would have had drastic effects on the student loan landscape. Collectively, we found that student loan changes that Trump favored could have cost borrowers at least a quarter of a trillion dollars over 10 years.

Here are a few of the notable student loan proposals included in the White House 2020 budget that weren't ultimately adopted.

Create one consolidated income-driven repayment plan

Currently, there are four income-driven repayment (IDR) plans. Depending on the plan, you can receive student loan forgiveness after 20 to 25 years of payments.

Trump’s plan was to consolidate all the plans into one. The rationale was that this would minimize confusion and make IDR easier to manage for the Department of Education.

Increase IDR monthly payments

With current IDR plans, your payment will typically be 10% of your discretionary income.

Trump’s proposal was to increase monthly payments to 12.5% of a borrower’s discretionary income.

The CBO estimates that the current student loan subsidy for IDR plans is 43% using a fair-value approach. It also estimates the expected federal student loan issuance over the next 10 years will be about $1.05 trillion.

I compared the present value of different cash flow estimates with a higher required payment.

My estimate is that the subsidy on IDR plans under a plan requiring 12.5% of income would be 28% using a fair-market value approach. That's in contrast to the higher subsidy rate of 43%, according to the CBO.

53% of borrowers with Direct Loans are on an income driven plan as of March 2020, according to the Department of Education.

That means the Trump student loan plan would've increase costs to borrowers by:

(Subsidy difference of 0.43 – 0.28) * ($1.05 trillion expected student loan issuance over 10 years) * (53% share of borrowers on IDR plans)

= $83 billion over 10 years.

Make IDR student loan forgiveness sooner for undergraduate loans

Along with the consolidation of the four IDR plans into one, the student loan forgiveness Trump proposed would've happened sooner for undergraduate borrowers.

Undergrads would be eligible to receive student loan forgiveness after 15 years. This would speed up forgiveness by five years from current IDR plans.

Make IDR student loan forgiveness later for graduate loans

While undergrad loan forgiveness would speed up under Trump’s plan, grad loan forgiveness would've taken longer.

Under Trump’s plan, graduate borrowers would've needed to make 30 years of payments before qualifying for forgiveness. That’s five years longer than current IDR plans for graduate loans.

There are more undergraduate borrowers compared with graduate borrowers. It's unclear exactly what the effect would've been on overall cost of changing the length of IDR forgiveness, but it would likely have cost borrowers money overall.

Eliminate Public Service Loan Forgiveness

In what was probably Trump’s most controversial proposal, he wanted to do away with the Public Service Loan Forgiveness (PSLF) program. The Trump administration argued that PSLF is a mess and gives unfair preferential treatment to public service workers. It said offering 15-year forgiveness to all federal student loan borrowers is a better plan.

In cutting this type of student loan forgiveness, a ton of overhead would potentially be eliminated, as the Department of Education would no longer have to deal with the headache of verifying employment data from PSLF applicants for 10 years.

This repeal would not have affected borrowers currently eligible for Public Service Loan Forgiveness. The PSLF program is explicitly listed as an option in your promissory note if you are an existing borrower. President Trump's plan would affect borrowers who have not yet taken out student loans.

You cannot qualify for PSLF unless you work 10 years at a qualifying not-for-profit or government employer while making income driven payments.

Approximately 25% of the work force works at a qualifying employer and 53% of borrowers pay their loans on an income driven plan.

By repealing PSLF, future borrowers could lose as much as (25% of workers eligible) * (53% share on an IDR plan ) * ($1.05 trillion in student loan issuance in the next 10 years) =

$139 billion over 10 years.

What Trump’s opponents say

Opponents to the change (and there are many) say that PSLF is needed. They believe the program encourages qualified workers to choose public service professions. Trump is going to have a fight on his hands when it comes to eliminating PSLF. He’s tried before and failed.

Even if he’s able to get this proposal passed into law, it would only apply to future student loans. If you’ve already been accepted into the PSLF program and have been making qualifying payments, you should be able to finish the program.

Related: What to Do If You’re Worried About Trump Repealing PSLF

Eliminate subsidized student loans

Currently, some federal student loans don’t accrue interest while borrowers are still in school. To qualify for these subsidized federal student loans, borrowers must demonstrate financial need.

If your family income is too high, you can take out an unsubsidized federal student loan. But Trump wants to do away with subsidized student loans altogether.

According to the nonpartisan Congressional Budget Office, Stafford Subsidized loans have a 10.7 percent subsidy rate. Out of $254 billion in issuance over 10 years, this would cost borrowers $27 billion over 10 years.

Again, this is sure to be an unpopular proposal. It also will have a hard time passing both houses of Congress.

Get Started With Our New IDR Calculator

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How the Trump student loan forgiveness plan compare to others

Trump wasn’t the only one proposing student loan reform during his time in office. Here are a few more plans that were tossed around in Washington prior to Biden taking over the presidency.

What You Can Do For Your Country Act

While Trump was angling to eliminate PSLF, Sens. Tim Kaine, D-Va., and Kirsten Gillibrand, D-N.Y., as well as other Democratic senators, focused on improvements to the program.

Here are a few key highlights from the What You Can Do For Your Country Act that was proposed in April 2019 but not enacted.

• Forgive 50% of student loan balance at five years: This would be a huge change, as currently it takes 10 years to earn PSLF forgiveness. With this plan, borrowers could have half of their balance forgiven at the five-year mark.
• Count “pay ahead” payments toward PSLF: This would keep you from being penalized for trying to do the right thing and paying more than you have to.
• Count all types of federal student loan: It’s unclear exactly what this would mean. But Democrats want Federal Family Education Loan (FFEL) Program Loans to qualify for PSLF.
• Eliminate the need for income certification: With this plan, every payment would qualify for PSLF. Therefore, there would be no need to annually certify your income.
• Allow self-certification of public service employment: If your employer refused to sign your certification form, you could certify your employment yourself.
• Make “30 hours a week” the clear definition of full-time employment: Currently, “full-time employment” is considered to be 30 hours or whatever your employer considers full-time. With this change, your employer’s definition would no longer matter.

How does Kaine and Gillibrand’s proposal compare to Trump’s?

On one hand, it recognizes the need to simplify the program. But it also demonstrates that the Democrats believe PSLF is worth preserving.

Student Borrower Bankruptcy Relief Act of 2019

The Student Borrower Bankruptcy Relief Act of 2019 was introduced by Sen. Richard Durbin, D-Ill., on May 9, 2019 but was not enacted.

This piece of legislation would have made it possible for student loans to be discharged in bankruptcy.

While that’s technically possible today, borrowers must prove “undue hardship” to a judge. Opponents to this current rule say that it’s incredibly subjective. They also find it strange that student debt is treated differently than all other debt in bankruptcy.

Lawmakers and advocacy groups have been calling for student loan bankruptcy reform for quite some time.

Elizabeth Warren’s student loan forgiveness plan

Sen. Elizabeth Warren, D-Mass., one of the 2020 Democratic presidential candidates, has been very vocal about the student loan problem in America. And she’s presented a bold plan to give borrowers relief.

With Elizabeth Warren’s plan, the government would forgive up to $50,000 of student debt per individual. The exact amount forgiven would depend on the borrower’s income.

Warren says her plan would erase all student debt for 75% of borrowers. It would also provide at least some relief for 95% of borrowers.

Borrowers with an income of under $100,000 would receive the full $50,000. After that, borrowers would receive less. Her plan caps out completely for borrowers who make $250,000 or more.

She also planned to pass a universal free college program, which would make all two-year and four-year public colleges tuition-free. However, her bid for the presidency didn't pan out in 2020.

Bernie Sanders student loan forgiveness plan

If you thought Elizabeth Warren’s student loan forgiveness plan was extreme, wait until you hear what Sen. Bernie Sanders, D-Vt., had in mind.

In short, he wants to forgive all $1.6 trillion of United States student debt in one fell swoop. Yes, that includes private student loans.

To pay for his plan, Sanders would institute a Wall Street tax. All stock, bond and derivative trades would be charged a small tax under Sanders’ plan.

Like Warren, Sanders also wants to make college more affordable. His College for All proposal calls for all four-year public universities, tribal colleges, community colleges, trade schools and apprenticeship programs to be free for families earning less than $125,000 a year. Also like Warren, Sanders bid for the presidency fell short.

What to expect for student loans if Trump makes it back into office

The total projected cost to borrowers if former President Trump's student loan plans had become law would've been at least $249 billion.

In order for any legislation to become law, the proposal must pass both the House and the Senate. And in our polarized political environment, far-left or far-right bills have a difficult time making it through.

Trump, President Biden and other politicians all have their own ideas for how to fix the student loan mess. If one party is able to win the presidency, the House and the Senate in 2024, it may be able to push its bolder ideas through. Otherwise, it’s going to take both sides working together (and making compromises) for more progress to happen.

What do you think of President Trump's past efforts to repeal Public Service Loan Forgiveness and the possibility he could replace the new SAVE plan if he wins in 2024? Let us know in the comments.