Experts React to Trump Budget Cuts of College Loan Aid

Experts React to Trump Budget Cuts of College Loan Aid
May 23, 2017 Marketing GrafWebCUSO

President Trump’s proposed budget released Tuesday will reduce the number of youth going to college, and saddle many of those graduating with greater debt, consumer groups said.

Trump’s 62-page “America First: A Budget Blueprint to Make America Great Again” includes a request for $59 billion in Education Department funding in 2018, a $9.2 billion cut.

As outlined last week in briefings with news outlets, the budget would provide new funding for school choice and voucher programs for K-12, while making larger cuts in other programs. College loan programs are chief targets, with $4 billion in cuts in 2018.

The budget maintains funding for Pell grants and Historically Black Colleges, but it eliminates supplemental funding for the most impoverished students seeking to attend college, eliminates the Stafford subsidized loan program, which benefits a broad swath of students by delaying interest on their loans while in school, in the military or unemployed.

Another program to be eliminated is the student loan forgiveness program begun by President George W. Bush to provide an incentive to those pursuing public service jobs in teaching, social work, medicine and other fields where pay is low and/or in places where hiring professionals is difficult.

Women and minorities are more likely to work in the jobs that qualify for public service loan forgiveness, said Whitney Barkley-Denney, legislative policy counsel at the Center for Responsible Lending in Durham, N.C.

“Those are exactly the people who are going to lose out with the elimination of public service loan forgiveness,” she said.

Over the next 10 years, the Trump budget would save the federal government $143 billion on college loan programs by cutting:

  • $76 billion from a new repayment plan that simplifies the program, but raises the minimum payments
  • $39 billion by eliminating subsidized student loans
  • $27 billion by eliminating public service loan forgiveness

White House Budget Director Mick Mulvaney told reporters Monday that programs cut had not proven their benefit.

“People don’t mind paying their taxes as long as they know their money is not being wasted,” Mulvaney said. “And for too long I think the federal government has been unwilling to prove to them that that’s the case.”

Jim Holt, chief revenue officer of Credit Union Student Choice, a CUSO based in Washington, D.C., said simplifying the repayment plans was needed.

“These have been very confusing for students,” Holt said. “There are four different income-driven repayment plans – there is a REPAYE and a PAYE Plan. And, an IBR and ICR Plan.

“You almost need to take a class in college on these different plans to know if you are eligible and what plan is best.”

The new repayment plans will increase minimum payments to 12.5% of income, up from its current level of 10%.

However, Holt said he was concerned the budget’s plan to end subsidized interest on Stafford loans, which are granted to about 6 million students a year, will tighten the financial squeeze on some families.

“This will certainly offer credit unions an opportunity to help educate their members and community on ways to best afford college along with offering low cost financing to meet any remaining need after exhausting available grants, scholarships and eligible federal programs,” Holt said.

Ending subsidized loans will create costs far greater than any budget savings, said Pauline Abernathy, executive vice president of The Institute for College Access and Success, an Oakland, Calif.-based nonprofit dedicated to making higher education more widely available and affordable.

Students starting school in 2018-19, graduating in five years and borrowing the maximum subsidized student loan amount of $23,000 would pay $4,350 more over 10 years. That represents a 15% increase in costs.

“It’s a recipe for higher student debt, greater inequality and ultimately a weaker economy as more Americans are struggling with debt burdens that make it difficult to save for retirement, to save for their children’s education, start a business or save for a home,” Abernathy said.

Trump’s assertion that Pell grant funding was maintained is misleading, Abernathy said.

The grants now cover the lowest share of college costs in 40 years, while the budget proposes ending inflation adjustments and “raids” $3.9 billion from the program’s reserves.