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March 5, 2014

President’s Budget Unsettling to High-Debt Student Loan Borrowers

On the one hand, the administration proposes to extend PAYE to all student borrowers starting in 2015, regardless of when they borrowed.  That would be nice.  

But the administration proposes sharply reducing the loan forgiveness available to high-debt student loan borrowers (except they refer to these cuts as "reform[ing] the PAYE terms to ensure that program benefits are targeted to the neediest borrowers."  The proposed "reforms" are a response to criticism arguing that existing forgiveness provisions permit already expensive schools to continue raising tuition with impunity.

Proposed changes include:
  • Eliminating the standard payment cap under PAYE;
  • Calculating payments for married borrowers filing separately on the combined household Adjusted Gross Income;  
  • Capping Public Sector Loan Forgiveness (PSLF) at the aggregate loan limit for independent undergraduate students (currently $57,500);  
  • Establishing a 25-year forgiveness period for borrowers with balances above the aggregate loan limit for independent undergraduate students; 
  • Preventing payments made under non-income driven repayment plans from being applied toward PSLF; and 
  • Capping the amount of interest that can accrue when a borrower’s monthly payment is insufficient to cover the interest.

It's not time to panic.  The proposal limits reductions in benefits to "new borrowers" and recommends that existing borrowers have access to current program benefits for all loans used to finance their current degree programs.  Moreover, the President's budget is a starting place for a long and bizaare political process that includes the usual Washington suspects.  That means that nothing will happen soon.

What should you do if you care?  Stay informed about student loan proposals and debate during the budgetary process and otherwise: sign up for my mailing list and you'll get occasional updates (enter your email on the top right of this screen).  And when things start moving on Capitol Hill--by all means tell your elected representatives what you think.

Read proposal

By Heather | Category: Higher education funding  
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