Trump’s Budget Proposal to Hit Student Repayment Programs

An estimated 165,918 Indians are enrolled at US colleges and universities, the highest figure reported by the Institute of International Education (IIE) and the US Department of State since 1999. Indians are also the second biggest group of foreign students after China. Parents in India regard education as an investment with many hoping to send their kids to the best schools. However, paying for college is a big issue when putting a child through university.  While a majority of students pay their tuition fees and living expenses using the financial support of parents or relatives, there are also those who rely on student loans to fund college. Others work to help defray costs while assistantships and loans become alternative sources of funding. Trump’s latest budget proposal, if approved by Congress without modifications, has serious implications on student debt repayment.

Availing of Federal Loans: The Traps

In New England, 78% of freshman students avail of loans (private and federal) to fund the first year of college (Collegefactual.com). Federal loans might have a subsidized component (the government pays for charges on the interest rate while you are in college) or not. Ideally, a subsidized loan is a better option because you pay back less in the long term. Despite this, there are many students who default on their loans. The average rate of default in New England is at 7.4% and is, unfortunately increasing.

For others, consolidation and refinancing of student loans are solutions to get a grip on monies owed. Those who can afford to pay the loan do so based on their income but there will be some who will default due to absolute incapacity to repay (no job or inadequate income levels). Note that declaration of bankruptcy does not automatically cancel your debt with the federal government.

Implications of the Trump Bill

Should the proposed bill of Trump go through, Indian students who have federal student loans will have a problem. First, income based repayment plans would be affected as under the present circumstances, students can pay back their debt as a percentage of their income. Trump’s budget proposal will cap that amount to 12.5% of discretionary income. On average, students pay 10% of their income to student debts incurred.

The second most prominent feature of the bill is the elimination of the Public Service Loan Forgiveness Program. Former students who find positions in the public sector whether working as teachers, military or health researchers will have their debts forgiven after 10 years of ‘on-time’ payments. With the dissolution of the program, the government will actively go after people who default on their student loans.  In addition, some 30 grant programs will lose funding support.

The proposed budget bill of the US President not only affects Indian students who have incurred federal student debts. It will impact 44 million borrowers who owe the government more than $1.48 trillion in student loans (FederalReserve.gov). A glimmer of hope is that modifications to the proposal will be applied by legislators that will favor less stringent student loan repayment schemes.

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