Here’s How Trump’s New Budget Will Affect Your Student Loans

Have a student loan? You'll want to read this.

The 43 million Americans with student loans — and the millions more who will take out their first college loans this fall — should pay close attention to President Donald Trump’s proposed 2018 budget. It requests dramatic changes to the help offered to borrowers, calling for an end to many benefits for lower-income students, and making life harder for those repaying graduate school loans. There’s a glimmer of hope, though, for those repaying undergraduate loans.

The budget, which was made public Tuesday, and is available on the White House website, is not set in stone — in fact, it’s more like a wish list the White House sends to Congress every year. Still, it will be used to frame discussion of student loan borrowing and repayment, so it demands attention.

Let’s break down what it could mean for you.

Lower-Income Borrowers Would Take a Hit…

Trump’s budget calls for elimination of the Stafford Loan program, which provides discounted loans to students with financial need. Stafford borrowers pay roughly half the interest rate of standard federal loan borrowers. These borrowers would also have to pay interest on their loans while in school, ending a long-time benefit. Students with standard federal loans don’t make payments while in school, but interest on their loans accrues and is capitalized, or added to their balance.

As Would Service-Based Loan Forgiveness…

The budget also calls for the end of the Public Service Loan Forgiveness (PSLF) program, which allows workers in some professions to see their loan balances erased after they make income-based repayments on their loans for as few as 10 years. The program began under the Bush administration, but under President Obama, the earn-out time was reduced to 10 years.

The program is already the subject of controversy, as the first crop of students eligible for 10-year forgiveness — about half a million graduates — will have that benefit kick in this fall. The Department of Education, under the leadership of Education Secretary Betsy DeVos, already has said it might not honor the forgiveness now. The Department of Education did not immediately respond to a request for comment about the program, or Trump’s budget.

Income-Based Repayment Plans Would be Reduced, But…

The biggest government savings in the budget when it comes to student loans, though, comes from reducing the number of income-based repayment plans made available to struggling graduates, according to a New York Times analysis. Currently, there are a series of complex offerings (explained in detail on the Department of Education website).

Plans with names like income-contingent repayment, income-based repayment, and “pay as you earn” are all designed to keep payments between 10% and 20% of the borrower’s income. Some offer payments as low as $5 per month, depending on income.

…Forgiveness Could Come Sooner

However, the Trump plan offers those using income-based repayment plans something Trump promised on the campaign trail. Monthly payments for undergraduate loan holders would increase slightly to 12.5% of income (from 10%), but would promise forgiveness on a shortened schedule — after 15 years of on-time payments. Currently, many plans require 20 years of payments.

Grad Students Would Be Hit Hard

On the other hand, those with graduate loans would face a tougher road. Graduate students would also have to pay more — 12.5% of their incomes — and would have to pay for 30 years instead of 25 years.

In other words, under Trump’s plan, a student who earned a graduate degree at age 25 would have to make on-time income-based repayments until age 55 to earn loan forgiveness, while someone with an undergraduate degree who graduated at 22 could earn forgiveness by age 37.

Those who plan to stop school after college might cheer the proposal, but an analysis of the student loan problem published by Credit.com shows that the majority of borrowers with oppressively large loans accumulated their balances in graduate school. While the average college loan balance for a 2016 graduate is about $37,000, one quarter of all grad degree earners had borrowed more than $100,000, according to a paper published by the New America Education Policy Program in 2015.

The New America paper also found that 40% of America’s outstanding $1 trillion-plus student loan balance is owed by those who earned a graduate degree. Trump’s budget essentially uses savings from cutting help to graduate school borrowers to offer help to undergraduate-only borrowers.

Whatever your student loan situation, keep in mind that missed or late payments can end up impacting your credit scores, which can hinder your borrowing ability in the future. You can see how your loan repayments are affecting your credit by checking your two free credit scores right here on Credit.com.

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6 Ways Trump’s Budget Proposal Could Affect Your Bottom Line

President Trump's proposed budget would reduce services to the poor and elderly. Here are the programs that stand to be hit hardest.

Do you commute to work, have a family member who’s out of work or know anyone who’s ever lived in a flood zone? If so, you should be paying close attention to that most Washington of annual rituals — the making of the federal budget. President Donald Trump’s dramatic budget has one clear winner (defense) and a long list of losers so you don’t want to ignore his proposals until it’s too late to influence the final outcome. So here’s our guide to some of the 80 or so programs that are targeted for deep cuts or outright elimination by Trump’s accounting.

Before we start, it’s important to understand that the federal budget process is a marathon, and we’re only at mile marker one. The White House has only released the so-called “skinny” budget. Many of the cuts it describes are not yet specific, and there’s a more detailed budget to come, followed by Congress’ own ideas about how to spend Americans’ money.

Still, there are enough programs called out specifically by Trump’s budget that one can imagine how America, and your community, might change were the budget to pass as is. The Trump administration did not immediately respond to request for comment on how the budget proposal would affect taxpayers. (On the note of budgets, here are some helpful tips for getting control of your personal budget.)

Changes for Train Travelers

If you like train travel, you might want to get your trips in now. Trump’s budget directly calls for the elimination of long-haul routes on Amtrak. These are largely used by tourists and have often been criticized as money-losing and unnecessary, particularly when the busy Northeast Corridor between Washington D.C. and Boston is overcrowded and profitable. So people who tour by train may need to spend their money on other travel options, like road trips or air travel. The good news for east coasters is some of those savings are being directed to improve service on the nation’s busiest rail line.

The Trump budget actually calls for a 13% overall cut at the Department of Transportation, which will impact local rail projects, too — like Seattle’s decades-long effort to get a light rail system off the ground. The proposed budget cut would actually half its funding. Some 70-such projects around the country are on the chopping block. So is a program named TIGER, which helped local governments pay for so-called “multi-modal” projects — often bike trails.

“Future investments in new transit projects would be funded by the localities that use and benefit from these localized projects,” the proposal says.

How Floods Could Cost More

Do you live near a flood-prone area or care about someone who does? Your life could get more complicated under Trump’s budget, which eliminates the Flood Hazard Mapping Program.

Flood maps are controversial because when they change — and change always means “expands,” because development almost always expands — they require more homeowners to buy flood insurance. On the other hand, the consequences of failing to update flood maps can be devastating, which America learned the hard way during Hurricane Katrina. People buy homes thinking they are safe from floods, and a developer may build on unsafe land. (And if you have flood insurance, it’s important to know what it does and doesn’t cover.) And when a flood comes, recovering from it without insurance assistance can be really expensive.

The budget says Trump’s administration will “explore other more effective and fair” ways to pay for new maps. Detractors oppose anything that makes flood insurance premiums more expensive, however, as that might lead to folks dropping flood insurance, creating another long-term headache.

Need a Lawyer? It’ll Cost You

If you’ve ever had a dispute with a landlord or a domestic partner and turned to a non-profit legal aid service for help, you might have been helped by the Legal Services Corp. Since 1974, Legal Aid has provided access to America’s otherwise expensive court system through a network of 133 independent nonprofit legal aid programs in 800 offices around the country. The program is targeted for elimination in the Trump budget. Some 1.9 million Americans used legal aid in 2014, the last year for which data is available, the organization says.

“Our nation’s core values are reflected in the LSC’s work in securing housing for veterans, freeing seniors from scams, serving rural areas when others won’t, protecting battered women, helping disaster survivors back to their feet, and many others,” said Linda Klein, bar association president, in a statement supporting the LSC. “The LSC embodies these principles by securing the rights of the least fortunate among us.”

Military Base Cities, Cyber-Warriors & Veterans Will Benefit

Trump’s budget calls for a huge increase in defense spending, with general guidance suggesting cities and companies that support nearly every branch of the military would benefit. The budget calls for fresh spending on munitions, warships, F-35 Joint Strike Fighters and a “fully equipped” Marine Corps. It also calls for large investments in cyber security, which appears under several budget items, including a $1.5 billion program within the Department of Homeland Security to “protect federal networks and critical infrastructure from an attack.” If you work in these fields, this budget could be good news for you.

The Department of Veterans Affairs also gets a sizable budget bump of 6%, including $4.6 billion to improve VA health care and “patient access and timeliness of medical care.” The funds will help continue the Veterans Choice program, which lets vets choose private providers when seeking care.

Out of Work? There’s Less Money for Retraining

Unemployed Americans, particularly older Americans, who seek retraining help may have a harder time under Trump’s budget. The Labor Department, which funds many such programs, is targeted with a 21% cut. Federal funding for local job training programs would be decreased, “shifting more responsibility” to local authorities. Specifically, Trump’s budget eliminates the $434 million Senior Community Service Employment Program, a community service and work-based job training program for older Americans that prioritizes help to veterans. Trump’s budget specifically calls out the program as “ineffective,” saying as many as one-third of participants fail to complete it, and only half of those get jobs.

Vouchers & Charters Win, After-School Programs Lose

For fans of charter schools and other open-enrollment public school initiatives, Trump’s budget includes a lot of new money and support. There’s $250 million for a new school choice program, $168 million more for charter schools, and $1 billion more for voucher-style programs that let local funding “follow the student to the public school or his or her choice.”

Trump’s budget eliminates $1.2 billion spent on 21st Century Community Learning Centers, which funds after-school and summer programs for 1.6 million kids around the country. The budget says the program “lacks strong evidence of meeting its objectives.” Both increases and cuts in spending in these areas could affect what families budget for education and child care.

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