Student loan borrowers are wondering how new leadership at the Department of Education could affect their repayment options. Income-driven plans and other repayment options may change significantly in the near future. Media outlets such as the New York Times and Bloomberg have used the White House budget proposal to discover how student loans could change in the coming months. Possible changes to federal student loan repayment options include:
- Changes to income-driven repayment options: At the moment, student loan borrowers can choose from one or more income-driven repayment options. The IBR, PAYE, REPAYE and ICR programs cap monthly payments at 10 to 20 percent of a borrower’s discretionary income. After making payments for 20 to 25 years, your remaining balance is forgiven. The budget proposal calls for one plan instead of several. This new plan would cap monthly payments for borrowers to 12.5 percent of their disposable income. Graduate students would be required to make payments for 30 years to receive loan forgiveness. Undergraduate students would have to make payments for 15 years.
- Elimination of PSLF: The White House budget also calls for eliminating the public service loan forgiveness program (PSLF) created under the George W. Bush administration. This program allows borrowers who are working in public-service jobs to receive loan forgiveness after making payments for 10 years. Unlike income-driven repayment plans, loan forgiveness under PSLF is not considered taxable income by the IRS.
These changes will only happen if the White House budget is passed by Congress. At the moment, that is not guaranteed to happen.
How Else Could Student Loans Change in the Near Future?
Two weeks ago, the head of the Department of Education’s federal student aid program (FSA) abruptly resigned. Before he resigned, he sent out a resignation memo explaining his decision. The memo, which was sent to the New York Times, speculates that the Education Department could move the FSA to the Department of the Treasury.
In addition to these possible changes, lawmakers are also considering restoring normal bankruptcy protections for student loans. If it passed and became law, the Discharge Student Loans in Bankruptcy Act would treat student loans in bankruptcy like other debts.
The Kansas City bankruptcy attorneys at The Sader Law Firm can help struggling student loan borrowers find options for managing their debts. Bankruptcy attorney Neil Sader was featured on the front page of Reddit for his IAmA on student loans. He was also featured in Missouri Lawyers Weekly for helping a client reduce her student loan debt by $250,000.