Each year, thousands of undergraduate and graduate across America take on debt in an effort to complete their education. Unfortunately, this debt is difficult to get out from under and can be crippling as many young adults try to begin their careers. President Obama put measures in place to allow student debt forgiveness, but recent budget proposals may eliminate some of those programs.
Student Debt in America
Student debt is a huge problem in the United States. As of June, 2017, Americans owed over $1.3 trillion in student loans. This figure is 250% higher than it was ten years prior. This is primarily due to two factors. One, more people than ever are going to college. Secondly, the cost of higher education has been rising drastically.
The Survey of Household Economics and Decisionmaking also provides other alarming statistics about student debt in America. According to the survey, approximately 40% of adults under the age of 30 have some sort of student loan debt. Perhaps more concerning, approximately 10% of adults between 45-59 still have student loan debt.
The median amount of outstanding debt is $17,000. As the level of education increases so too does the amount of debt. For example, those that take out a loan for their postgraduate degree owe an average of $45,000 on their loans.
Lastly, the study indicated that having student loan debt can hinder someone’s primary career. Graduates who have not been able to achieve student loan debt forgiveness are more likely to struggle financially. As a result, those graduates are more likely to take on a second job, spending more hours working to make the income necessary to pay their loans.
Obama’s Student Debt Forgiveness
One of the first things President Obama did upon taking office was institute a student debt forgiveness program. In July 2010, Obama made achieving student debt forgiveness much easier under the Direct Loan Program. The Direct Loan Program is the country’s only government-backed loan program.
Obama instituted local programs under the Health Care and Education Reconciliation Act. By doing so, those with loans were given more options to help repay their loans. Radical changes came as a result, including the fact that private lending institutions no longer received federally-backed loans from the federal government.
Additionally, paying off loans became easier because of a policy that allowed borrowers to make payments on their loan based on 10% of their discretionary income. The program also made student debt forgiveness easier, as borrowers are now eligible for forgiveness after 20 years, as opposed to 25.
Under the Obama Student Loan Forgiveness Program, borrowers could also streamline how they make their payments. Instead of being required to repay many different loans, Obama’s program allowed borrowers to combine all of their federal student loans into one new loan. Borrowers are able to choose the payment plan they feel is best to help pay for this consolidated loan.
It’s important to remember that borrowers are still responsible for repaying loans, even if they do not complete their schooling. Federal Student Aid, an office of the U.S. Department of Education, has a website that outlines the loan forgiveness requirements extensively.
After reviewing the information found on this site, if you think you may qualify for student debt forgiveness, begin by contacting your loan servicer. Your loan servicer will consider many factors, including your employment history and your payment history, to determine if your loans can be forgiven.
The most important factor of loan forgiveness is ensuring that you never default on your loan. Once you fall behind on payments and default on your loan, you will likely lose eligibility for forgiveness immediately. Even if you have been approved for loan forgiveness, you should continue making payments until the forgiveness is official, to help ensure you remain in good standing.
School Debt Forgiveness Program May be Eliminated
Although Obama’s programs still remain in place, there may soon be a change to the loan forgiveness program. As you may have recently seen, Congress has been struggling to come up with the Fiscal Year 2019 budget. President Donald Trump recently unveiled what he would like to see in the budget. His proposed budget would deliver a huge blow to those looking for school debt forgiveness.
Trump’s proposed budget would
- Dramatically cut back loan repayment plans that were based on income
- Eliminate the Public Service Loan Forgiveness Program
- Encourage the government to seek repayments from students who don’t pay their loans
- Slash the federal work-study budget by 50%
While President Trump’s budget will certainly be altered in some way before it is approved, it’s an interesting revelation to know that his administration is considering eliminating the student debt forgiveness program. It will be worth monitoring the program’s status over the upcoming months to see if there are any noteworthy changes that are accepted into law.
Fortunately, those who already have student debt would be protected under the proposed budget. The changes that Trump has suggested would only apply to those borrowing after July 1, 2019. At that time, those that have already obtained a loan to assist with their current education would not be affected.
Graduate Students Would Be Impacted
Trump’s proposed budget would also have a significant impact on graduate students, such as those in search of medical school loan forgiveness. Graduate students would not have their loans forgiven for 30 years, compared to the 15-year term for undergraduate students. According to student loan expert Mark Kantrowitz, graduate students would be paying much more.
Although short-term training programs would be covered under a Pell Grant expansion, graduate students would ultimately pay more because of the elimination of the Public Service Loan Forgiveness Program. This program currently assists those who put their education toward employment in a public service position, such as a public school teacher or health researcher.
Under the Public Service Loan Forgiveness Program, if an individual makes their payments on-time for ten years, their loans are then erased. The program is especially beneficial because those working in public service positions typically do not make much income. Of those that have shown interest in the program, two-thirds make less than $50,000 annually.
Kantrowitz predicted that if these measures were to be repealed, fewer people would choose a career path that led to a public service occupation. This could end up being a tremendous detriment to society, as there could be a reduction in employment numbers for people such as law enforcement officials, firemen, EMTs, prosecutors, and public defenders.
Title 1 School Loan Forgiveness Program
Many teachers also benefited from the Title 1 School Loan Forgiveness program, which could be affected by Trump’s proposal. Title 1 refers to a section of the Elementary and Secondary Education Act. It grants financial assistance to those schools that host a high number of low-income families. The funding is intended to help children meet academic standards set by the state.
Under the Teacher Loan Forgiveness Program, teachers are able to qualify for a principal loan deduction of anywhere from $5,000 to $17,500. Then, after a ten-year term, the remaining balance on their loan would be erased. The ten-year forgiveness portion of the Teacher Loan Forgiveness Program falls under the umbrella of the Public Service Loan Forgiveness Program.
However, many teachers are eligible to receive the benefits of both programs. There are a number of eligibility requirements, including
- The Federal Student Loan must have been obtained after October 1, 1998
- You are not in default on your loan, nor are you on a subsidized or unsubsidized loan
- Five full years as an academic must have been completed
- The teacher was employed by a Title 1 school
Medical School Loan Forgiveness
Medical school loan forgiveness could also likely be impacted by the proposed changes to the Public Service Loan Forgiveness program. Medical school loan forgiveness can be very beneficial if for no other reason that medical school is tremendously expensive. Many students graduate medical school with debt around $200,000.
To be eligible for loan forgiveness, physicians must work at an approved public service organization. Their loans will be forgiven if they work at one of these organizations for ten years. Their medical school loans could also be forgiven after 25 years of service with a for-profit organization.
If you are considering working in public service, these programs are worth considering. You should consider securing a loan rate that is low and extended over many years. Your goal should be to pay a minimal amount on the loans for the longest amount of time possible. The pay structure is scaled, although it is capped at the amount of the 10-year-level repayment note.
If done correctly, students could end up having approximately 80% of the medical school loans forgiven. If you’re not eligible for loan forgiveness, there are a number of loan payment options available for students, including
- Pay as you Earn
- Income-Based Repayment
- Income-Sensitive Repayment
- Income-Contingent Repayment