Will Trump Repeal PSLF? What to Know

Could President Trump's victory in the 2024 election mean the end of the Public Service Loan Forgiveness (PSLF) program?

Republicans in Congress have already telegraphed their plans for PSLF when they had unified GOP control of Congress and the White House in 2017 (they attempted to repeal it). Will 2024 and beyond be a repeat of those attempts? Or could a fresh PSLF repeal attempt actually succeed?

Here are my latest thoughts on the potential effort of the Trump administration repealing PSLF and the impact of Trump's plans for student loan forgiveness more broadly (and to get breaking news on what Trump does with PSLF, make sure to sign up for our weekly student loan update).

What happened with Trump's previous PSLF repeal attempts?

Clients flooded my inbox with questions asking about the Trump administration's plans regarding the PSLF program when he first won the White House in 2016.

For those who don't know, PSLF allows federal student loan borrowers to work for a nonprofit employer for 10 years and receive loan forgiveness that's not considered taxable income. For many borrowers burdened by huge amounts of student debt, student loan forgiveness eligibility through public service feels like their only hope.

Obviously, given the more recent successes of the PSLF program during the Biden administration, President Trump DID NOT repeal PSLF. But that doesn't guarantee what will happen next, of course.

How fear of PSLF repeal can cause huge mistakes

Let me share a conversation I had with a client all the way back after the 2016 election that still holds true today. This borrower had a $200,000+ student debt balance and was incredibly worried about Trump repealing PSLF.

Hence, they thought, “Why not go ahead and refinance to lock in a lower interest rate and pay everything off.”

Otherwise, she could risk being in student loan debt for a decade or more if PSLF didn't work out, with unknown impacts on her overall financial health.

If she stays on PSLF and files her certification paperwork, she's on track to save about $200,000 through debt cancellation. If she refinances and avoids waiting around 10 years to find out PSLF doesn't exist anymore, she could save about $50,000.

Let's think about this scenario as a professional gambler would. One outcome gives you savings of $200,000. The other outcome gives you savings of $50,000. The two options are mutually exclusive, meaning PSLF can't exist and not exist at the same time.

Therefore, if I wanted to decide what to do, I would multiply each of the numbers by the probability of each event and sum them.

The great news for PSLF borrowers is that the chance of a full PSLF repeal is extremely low.

So “rolling the dice” with PSLF is actually exceedingly low risk.

The question of pursuing PSLF during a second Trump administration is not “will it be there or not.”

Let me explain more as to why.

What is the PSLF repeal probability?

Let's look at some PSLF-related proposals in recent years.

The 2015 Republican PSLF repeal plan grandfathered in anyone currently holding federal student debt. It also allowed students enrolled in degree programs at the time of the repeal to continue borrowing PSLF-eligible loans until they graduated.

The Democrats also effectively proposed their own repeal plan in former President Obama's budget around the same time. President Obama tried to limit PSLF to a maximum benefit of $57,500. That effort failed due to resistance in his own party.

Then, in January 2017, Republicans had all the levers of power. Yet, they failed to repeal PSLF.

During the Biden administration, the PSLF program was supercharged under the PSLF waiver, with more than 1 million borrowers qualifying for PSLF under far more generous rules.

Since Republicans tried very hard to repeal PSLF and failed in 2017, PSLF repeal would likely fail again for the same reasons it failed in 2017.

Specifically, PSLF repeal failed under the first Trump administration because Republicans did not have a filibuster-proof majority in the Senate (60 votes).

The last time either party held that large a majority was during the 2009 financial crisis era, coincidentally when much of the new IBR program rules were passed as a tag along to the Affordable Care Act (ACA) health care bill.

Since PSLF is written into law, you'd have to convince at least a handful of Democratic Senators to go along with it. With several moderate Democrats retiring or losing their seats, the remaining members are more progressive and thus would be likely to oppose PSLF repeal strongly.

So that means the probability of a full PSLF repeal is incredibly small (unless Republicans nuked the filibuster, which seems quite unlikely given their enthusiasm for it).

PSLF changes would have to happen from an act of Congress with some measure of bipartisan support, not just because a president wills it.

Calculate the expected value of staying on PSLF

Going back to the earlier example I used all the way back after the 2016 election, say you have $200,000 of projected savings under PSLF. Alternatively, assume you would incur losses of $50,000 in higher interest costs if you remain on the federal loan system and accrue unnecessary interest.

Let's say PSLF repeal has a 10% chance of happening (to be clear, I think even that low number is way too high). The chance of PSLF sticking around in this hypothetical example would be 90%. With these probabilities, the expected value of staying on PSLF for the borrower example I used is $200,000*0.9+(-$50,000)*0.1=$175,000.

Even if the probability is 50/50 of PSLF repeal, staying on PSLF has a positive expected value in a case where a borrower has a six-figure student debt load.

Therefore, if you're looking at PSLF logically as an investment professional, you need to stay on the program if your savings are significant.

Prepare like PSLF might end tomorrow, even though it won't

In a disastrous scenario for borrowers where PSLF was repealed, you can probably insulate your finances.

Borrowers in pursuit of PSLF fall into two camps. The first group could pay their student debt off if they wanted to, even if it would take additional years to do so. They're pursuing PSLF because it's a better financial decision, not because it's their only option.

The second group can never repay their student debt due to economic hardship or huge grad or undergraduate loans. They would need to use income-driven repayment (IDR) 20-year debt forgiveness in the absence of PSLF.

Borrowers in the first group will have debt-to-income ratios below 2. They would refinance their loans and pay back their debt if PSLF went away.

Borrowers in the second group will need to focus on saving and investing more in retirement and mutual fund accounts if PSLF disappears because 20 and 25-year IBR forgiveness is also written into the law even if PSLF was overturned.

After creating tens of thousands of customized student loan plans for borrowers, we've found that your savings rate matters far more than what happens with your student loans.

Hedge your risk against PSLF repeal. Save aggressively outside of your retirement plan. If PSLF changes, then you can retool your loan strategy accordingly.

P.S. If you are facing a six-figure student loan burden, check out how we create “PSLF & PSLF backup repayment plans” for your student loans.