Student loans and Trump: Borrowers brace for changes

From the future of the Affordable Care Act to the fate of same-sex marriage, Donald Trump's reelection has prompted many questions over what to expect in the next four years.

Experts say one of those is more of a certainty, however: Attempts to deliver wide-scale student loan relief will likely be halted.

While Trump hasn't been clear on his plans, he has been a staunch critic of federal student loans and attempts to reduce loan balances. Under President Joe Biden's term, nearly 5 million people had their loans canceled. Another 8 million borrowers won't be making payments when Trump takes office because one of Biden's repayment plans is on hold. 

Here’s a look ahead at what could happen to student loans in Trump’s second term:

What happened last time?

In Trump’s first term, he attempted to eliminate the Public Service Loan Forgiveness (PSLF) program, a federal initiative that forgives the remaining balance on direct loans. The attempt went nowhere.

“That was a proposal, but I think he knew it would be dead in the water,” said certified financial planner and certified student loan professional Meagan McGuire. “I think it was meant to be a statement."

There were also delays with the borrower defense to repayment program, which protects consumers who have been defrauded by their school or whose schools closed while they were attending.

And former Education Secretary Betsy DeVos made it difficult for borrowers to discharge loans due to fraud. Some experts worry this might happen again. 

What might happen this time?

Trump could try again to eliminate the federal student loan program, reassign it to another department or revamp it.

If he embraces Project 2025, a policy blueprint from the conservative Heritage Foundation, student loan borrowers might run into several challenges. 

“Project 2025 calls for ending Public Service Loan Forgiveness, borrower defense to repayment and the SAVE repayment plan,” said Mark Kantrowitz, author of “How to Appeal for More College Financial Aid.” 

Another Project 2025 goal is the dissolution of the Department of Education, which is currently responsible for disbursing federal student loans. Project 2025 calls for a return to private lenders to fund higher education costs.

Trump could also abandon the Saving on a Valuable Education (SAVE) Plan, a Biden initiative that cut student loan payments for millions. In October, Biden's administration announced the payments will remain on pause for six months or longer while the courts decide if the SAVE plan is legal.

Student loan forgiveness 

Trump's opposition to student loan forgiveness, including the PSLF program, won’t affect existing borrowers, experts said.  Federal student loans require borrowers to sign a promissory note, which currently lists PSLF as an option. This likely means current borrowers will be grandfathered into having PSLF as an option.

Income-driven repayment (IDR) plans

Presidents have the power to create new repayment plans, as when President Barack Obama instituted the REPAYE plan and signed the Income-Based Repayment plan into law.

It’s not likely Trump will institute new IDR plans, and the Republican-controlled Congress could block student loan relief legislation proposed by Democrats.

However, Republicans might have a hard time pushing extreme student loan bills through, according to Kantrowitz, because they don’t have a supermajority in the Senate.

“That means legislation in the Senate could be subject to a filibuster, unless it is part of a budget reconciliation bill or the Republicans eliminate the filibuster,” Kantrowitz said. “Also, the party in control of each chamber would have to exercise strict party discipline when they have just a few votes advantage, since each member of Congress effectively has a veto. We saw this with the current Republican control of the House and Democrat control of the Senate.”

Tax-free loan forgiveness on IDRs

Some borrowers forget that if they are on an IDR plan without the benefit of PSLF, they owe taxes once the remaining loan balance is forgiven. The Tax Cuts and Jobs Act of 2017 modified this rule so any forgiven balance will not be taxed, but the law expires at the end of 2025 and its fate rests with Congress.

“It is unclear if this will be extended,” Kantrowitz said. 

Loans that were already forgiven 

Loans that were forgiven under Biden's term will likely remain forgiven, McGuire said. It’s unlikely that Trump would undo any forgiveness that has already been successfully processed, she said.

“What’s done is done, we believe,” she said.

What to do if you’re a borrower

Switch to IBR

If you’re working toward PSLF and you’re currently on the SAVE plan, McGuire recommends switching to the Income-Based Repayment plan. IBR is a statutory plan, which means it is enforced by law, not by presidential executive action.

“IBR is the safest and still eligible for PSLF, so that’s what I would pick if you’re worried about getting PSLF credit,” McGuire said.

Your payments will likely increase under IBR, but it’s better than not getting credit for any months under SAVE.

Even if you’re pursuing regular IDR loan forgiveness without the PSLF element, McGuire still recommends switching to IBR as the safest route.

Send in your certification form

McGuire recommends sending in your PSLF certification form if you haven’t already. This form tracks the number of eligible payments you’ve made and confirms you’re on the correct repayment plan.

Make sure to set a reminder to check on the form. The government should respond by telling you how many eligible payments you’ve made toward PSLF. Also, you should certify your loans once a year until you’ve made 120 eligible payments.