Donald Trump’s student-loan plan would benefit many student borrowers, offering more substantial loan forgiveness to tens of thousands of undergraduates compared to previous plans, according to a first-of-its-kind analysis released this week by the Brookings Institution.
The plan would compensate by shifting costs heavily onto graduate students, eliminating the benefit of loan forgiveness entirely for many graduate borrowers enrolled in income-based repayment plans, the analysis said.
Under Trump’s plan, which was included in his 2017 budget proposal and still faces an uphill road to passage, undergraduate students enrolled in the federal income-based repayment plan would pay a higher portion of their income every month toward their loans — 12.5% versus 10%.
But they would have their loans forgiven after just 15 years of monthly payments, instead of the current 20, a key benefit that the Brookings analysis shows would save many borrowers thousands of dollars. Graduate students under Trump’s plan wouldn’t have their loans forgiven except after 30 years of payments — a milestone which many would never reach.
That structure would especially help undergraduate borrowers with higher debt levels and incomes, the analysis found: People tend to earn more money later in their careers, so forgiving loans earlier means they would miss out on the five years during which their income-based payments would be the highest. The slight bump in monthly payments early on in their careers wouldn't outweigh that benefit.
A student with $40,000 in loans who began their career with a $35,000 salary and regular annual raises would pay a total of $48,000 under Trump’s plan, compared to over $60,000 under the current plan — a saving of $12,000. The borrower would save more than $200 a month over the course of five years under the Trump plan.
Those with relatively low debt levels and salaries — like students with associate’s degrees — would see fewer benefits, Brookings found: With $15,000 in loans and a $20,000 annual salary, a student would pay a total of $10,954 under Trump’s plan, compared with $15,602 under the current plan.
Some advocates have argued that Trump’s plan for increased monthly payments would hurt those with low incomes, especially young people for whom just a few dollars a month can make a substantial difference early on. The borrower with $15,000 in debt would pay $20 a month under the new proposal, $4 more than their current $16 payment.
Trump’s budget also took away a key benefit currently offered to poor students by eliminating subsidized Stafford Loans, which have lower interest rates. Interest on Stafford Loans doesn’t begin to add up until students graduate, meaning that without them, poor students graduate with higher debt levels.
That would hurt students who don't receive loan forgiveness, forcing them to pay off higher balances as interest accrues. But wiping away Stafford Loans ultimately doesn’t have an effect on students receiving forgiveness, the analysis says, because their debt is forgiven anyway. Both hypothetical borrowers that Brookings studied pay the same overall, whether or not they received subsidized loans.
For graduate students, the budget is grim: Grad students have higher monthly payments and must pay their loans off for longer before they can be forgiven, “making it far less likely a borrower would receive loan forgiveness,” the analysis says.
Take a graduate student with $50,000 in student loans, the median nationwide, and a steadily rising income of $40,000 a year. Under the current plan, they would pay $75,000 over 20 years, with $32,000 forgiven. But under Trump’s plan, with its higher monthly payments, they would pay off the loan entirely in 23 years, receiving no forgiveness.