Trump budget would ax some student loan forgiveness programs, Stafford loan subsidies

Charisse Jones, USA TODAY

In Donald Trump's latest budget, aid for lower-income students and a program that offers relief to workers in public service are on the chopping block.

The $4.89 trillion plan, presented to Congress on Monday, would cut the Education Department's budget by $5.6 billion, eking out savings by ending some grants, freezing the maximum amount of others and shifting some payments from the government to borrowers.

A couple of proposals could help those struggling to repay their loans.  

The spending plan was criticized by Democrats who control the House and has little chance of going into effect when the new fiscal year starts in October.

"Most of these changes we have seen the Trump administration propose over the last four years,'' says Antoinette Flores, director of post-secondary education for the Center for American Progress. "But we've also seen ... both the House and the Senate overwhelmingly reject these ideas. So the reality of this actually happening is slim.''

If the plan was approved, borrowers could be burdened with billions of dollars more in debt payments.  

Scrapping student loan forgiveness?  

The Trump administration proposes scrapping a program that forgives the remaining student debt of teachers, firefighters and others in public service who have made on-time loan payments for 10 years.

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"Ultimately, it means a higher debt burden,'' Flores says, resulting in $52 billion in additional payments for borrowers over a decade.

The possibility of the program being eliminated worries Kelsey Hubbard, 26, an English teacher in Russellville, Arkansas. She looks at the program as a financial lifeline. 

“I am already budgeting every single penny I make as a teacher, so … not having to make that payment would be amazing,” says Hubbard, who has roughly $35,000 in student loans. “That’s groceries. That’s gas.”

Hubbard learned about the program when she was in graduate school and continued to hear about it from colleagues once she started teaching.

“It’s very commonly talked about and used,” she says. “We do not get paid a lot, but you have this security blanket after 10 years. It would take the burden off.”

No more subsidized Stafford Loans? 

The federal government pays the interest on certain government loans, called Stafford loans, while the student borrowers are in school.

Trump's budget would get rid of that subsidy, adding several hundred dollars to what a student must pay back. It would amount to $18 billion in additional costs for borrowers over a decade.

"There's no question that students ... would owe more when they graduate from college,'' says Sandy Baum, senior fellow in the center for education, data and policy at the Urban Institute. 

It's doubtful that the loss of the subsidy will become a deal-breaker for people wanting to go to college.

"If you asked a student, most of them have no idea whether their loans are subsidized or not,'' Baum says.

Eliminating Supplemental Grant?

The proposed budget would do away with the Federal Supplemental Educational Opportunity Grant.

Trump's plan says the student aid duplicates Pell Grants, the primary federal grant program for low- and moderate-income students.

There were 8.2 million students awarded Pell Grants in fiscal year 2019 compared with 1.7 million who received money through the supplemental grant initiative, according to the Federal Student Aid office of the U.S. Department of Education.  

"We’re talking about a very small program where on average, students get a few hundred dollars ... not the few thousand dollars that they get from a Pell,'' Baum says.

Still, it would be a loss for the 84% of recipients who the Center for American Progress says pay for school on their own or whose families earn less than $30,000 a year.

"When you're talking about cutting grant aid, that’s going to ultimately lead to higher borrowing," Flores says. 

Limits on borrowing? 

The Trump administration proposes limits on how much parents of undergraduates can borrow from the federal government to pay for school. It wants to cap how much graduate students can take out in federal loans.

Through the Parent PLUS loans program, parents wouldn't be able to take out more than $26,500 in loans to pay for their children's undergraduate educations. Students whose families reach that threshold could borrow up to $57,500 on their own.

Those in graduate school could borrow a maximum of $50,000 a year and no more than $100,000 during their lifetimes.

"In my opinion, that’s totally reasonable,'' Baum says. "There’s no reason why the federal government should lend such large amounts of money to parents who may have their lives ruined by it because they can't afford to repay it.''

Students in expensive graduate programs such as medicine might have to take out private loans to fill in the gap between the federal assistance they receive and the tuition they owe, Flores says.   

Income repayment program

Another proposal could help borrowers better manage their debt. It would automatically enroll those who defaulted on their loans into an income repayment program. 

Five separate options that determine how much borrowers pay based on their earnings would be consolidated into one plan.

Then, “to further improve and simplify loan repayment, the (budget) proposes auto-enrolling severely delinquent borrowers into the single … plan,’’  the Department of Education says in a summary.

 "That's a good change,'' Flores says, "but doesn't make up for some of the cuts.''

Follow Charisse Jones on Twitter @charissejones

This article originally appeared on USA TODAY: Trump budget: Student loan forgiveness, other aid on chopping block