Trump’s Student Loan Repayment Plan May Help Income-Based Repayment Borrowers
There are trade-offs though. Borrowers would have a higher monthly payment but have their debt forgiven much sooner.
Here is some of what Trump is proposing.
Borrowers pay 12.5 percent of their income when doing a repayment plan rather than the current 10 percent.
After 15 years of repaying the debt, borrowers could have debts forgiven. Right now, the wait is 20 to 25 years.
Roughly 20 percent of people are enrolled in the income-based repayment plan, quadruple the amount in 2012, where it was just five percent. These kinds of plans are available just with federal student loans; private lenders do not offer such loans. While most borrowers with these loans pay their debts off, low-income workers often can’t pay the interest on the loans, which increases their balances.
His plan could help these low-income borrowers.
For instance, a person borrowers $70,000 in federal student loans at an average 5.5 percent with an annual income salary of 50,000 that grows three percent every year. This person would pay $89,600 in 20 years under the Pay As You Earn plan that Obama introduced in 2012. With Trump’s plan, that borrower would only pay $76,800 in 15 years before the remaining balance is absolved.
According to Student Loan Hero CEO Andy Josuwelt, the plan Trump is proposing could benefit borrowers, saving them a lot of money in the long run. However, the savings have a price that affects the government and taxpayers.
Trump has yet to detail how the government will handle the costs associated with forgiving the debt five to 10 years earlier than the present repayment plans. As it stands, the Department of Education spends roughly $11 billion on the income-based repayment plans.
Trump’s repayment plan doesn’t need the action from Congress to take effect. The DoE put into practice two new repayment plans with the help of the Obama administration. Of course, any student loan debt that’s been forgiven can be taxed as income.