President-elect Donald Trump’s victory last week should bring some clarity to Americans with student loans, but probably not in the way they’d hoped.
Current Debt Relief Programs
In July 2023, the Education Department launched the first elements of its Saving on a Valuable Education repayment plan to cut payments and forgive low balances on federal student loans more quickly. Like several other repayment plans, SAVE allows borrowers to pay 10% of their discretionary income each month for 20 to 25 years, at which point their remaining balance would be forgiven.
However, it raised the amount of income considered nondiscretionary by 50%, immediately lowering monthly payments, and forgave any interest that accrued while a borrower remained current. And starting in July 2024, it was set to slash payments dramatically, to 5% of discretionary income.
By mid-2024, 8 million borrowers had joined the SAVE plan. That’s when seven Republican state attorneys general sued. On Aug. 9, the 8th Circuit Court of Appeals published a ruling temporarily blocking the entire plan. In other words, no lower payments, no loan forgiveness.
Assuming the Trump administration abandons the SAVE plan, borrowers enrolled in it will have to shift to a different repayment plan with significantly higher monthly payments. In one example provided by the department, a single borrower earning $40,000 a year and owing $45,000 would see payments increase from $60 in the SAVE plan to $151, $227 or $349, depending on the plan chosen.
Proposed Blanket Loan Forgiveness
Shortly after the U.S. Supreme Court threw out Biden’s original proposal to offer blanket forgiveness of up to $20,000 in student debt, the Education Department started work on a less expansive proposal for blanket debt relief and debt reduction. The draft rules would have canceled the debts of borrowers who’d been making payments for at least 20 to 25 years and wiped out interest-related debt for certain borrowers, but like the SAVE plan, they were challenged by seven Republican state attorneys general, who argued that the department overstepped its authority.
A federal judge in Georgia temporarily blocked the rules two days after the lawsuit was filed. When that order expired, a federal judge in Missouri blocked it again.
Loans Already Forgiven or Modified
Experts say that borrowers who’ve already had their loans forgiven won’t be affected by the changes brought by the Trump administration. Also, many borrowers enrolled in Public Service Loan Forgiveness have moved significantly closer to the end of their payments, thanks to accounting adjustments ordered by the Biden administration.
Those adjustments, which included giving some borrowers credit for years spent in forbearance, were made in the name of correcting what the administration argued were record-keeping errors, bad management, and predatory practices by the companies servicing federal student loans.
The Possible End of the Department of Education
The president can’t kill a federal department unilaterally. That would take an act of Congress, along with a considerable amount of work figuring out which duties get taken over by other agencies and which ones get left to the states.
Abby Shafroth, co-director of advocacy for the National Consumer Law Center, said shifting management of the loan programs to the Treasury Department “would likely risk substantial disruption for borrowers just due to the logistics of making that change.” But any change in their repayment rights or options, she said, would depend on policy changes made through new laws or rules.
Conclusion
The bottom line is that Biden administration efforts to ease debt burdens are likely to be swept away in short order. The Trump administration is expected to abandon the SAVE plan, and borrowers enrolled in it will have to shift to a different repayment plan with significantly higher monthly payments.
Frequently Asked Questions
Q: What is the SAVE plan?
A: The SAVE plan is a repayment plan that allows borrowers to pay 10% of their discretionary income each month for 20 to 25 years, at which point their remaining balance would be forgiven.
Q: Why was the SAVE plan challenged in court?
A: The SAVE plan was challenged in court by seven Republican state attorneys general, who argued that the Education Department did not have the authority to expand the reach and cost of loan forgiveness so dramatically.
Q: Will borrowers who have already had their loans forgiven be affected by the changes brought by the Trump administration?
A: No, borrowers who have already had their loans forgiven will not be affected by the changes brought by the Trump administration.
Q: Will the Trump administration eliminate the Department of Education?
A: The Trump administration cannot eliminate the Department of Education unilaterally. That would take an act of Congress, along with a considerable amount of work figuring out which duties get taken over by other agencies and which ones get left to the states.
Q: What does the 8th Circuit Court of Appeals ruling mean for borrowers in the PAYE and ICR plans?
A: The 8th Circuit Court of Appeals ruling means that borrowers in the PAYE and ICR plans may not ultimately be eligible for having their debts forgiven.
