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Trump Administration Wants to End Subsidized Student Loans

Trump Administration Wants to End Subsidized Student Loans

Hard ball.

They also want to end the debt forgiveness program for those who go into public service. This is going to spark new campus protests, for sure.

The Associated Press reports:

Trump Wants to End Subsidized Student Loans

The Trump administration is proposing to eliminate subsidized student loans and end student debt forgiveness for those who enter public service, according to a budget document released late Monday.

The proposals are likely to face criticism amid calls to make college more affordable and as millions are struggling to pay off student loans.

In a budget document made public Monday night, the administration seeks to save just over $1 billion by doing away with the subsidized student loan program. For undergraduate students who qualify, the government pays the interest while they remain in college. Students can borrow up to $23,000 during their four years in college. The current interest rate is 3.76 percent.

The document also calls for eliminating the Public Service Loan Forgiveness program with the aim of saving $859 million. That program was launched in 2007 with the idea to motivate university graduates to take government and teaching jobs in remote rural areas. Under the program, the remainder of a student’s debt is forgiven after he or she makes 120 qualifying payments, or typically after 10 years.


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“Public Service Loan Forgiveness”

Let me get this straight…. govt money to get a college degree that is likely useless for anything other than getting a government job. For which your loans are forgiven and you are paid more govt money. And then you get a cushy govt pension which guarantees more govt money the rest of your life.

Where, again, does all this govt money come from?

    That public service loan forgiveness program has conditions.

    (Full disclosure: I work for my State government and have student loans that went into repayment while I was working for the State, so I’ve looked into it. Bottom line, I won’t be using it; I’m not willing to take the hit to my credit score to save a few bucks. See below.)

    First, your loans have to have been in “repayment” for 10 years before you qualify and can apply. IIRC, you also have to have been employed in public service for 10 years and still have outstanding student loan debt after that time.

    Here’s the kicker: The standard term of repayment for any student loan is … 10 years. So you have to be pretty far behind on your loan payments in order to qualify and have it be worthwhile.

    Honestly, I don’t see many people (other than those who truly are in hard times) “taking advantage”. The downsides are too great. Anyone who applies for public service loan forgiveness already has their credit wrecked (and the damage will last for a very long time after the loans are paid off); if they intentionally put off their loan payments just so they could apply for forgiveness, I’d say they deserve that lasting damage.

Close The Fed | May 24, 2017 at 9:22 am

Anything to rein in young people debasing their future by debt.

Many wouldn’t go to college if loans weren’t available; they would be out in the market getting available jobs which pay well, a la Mike Rowe

As the years go by, I’ve seen more and more use of these loans not just for tuition and books, but for groceries etc which could be paid for by a part time job. It’s better to have a job than debt.

I have a son starting college in the Fall.
Subsidized student loans are one of the major factors that have driven up the cost of college.
We need to cut the subsidies. This will make the loans more expensive to parents (like me). You will see fewer students going to the expensive schools. Guess what will happen? These schools will lower their costs, followed by all the other schools. The cost of attending college will become more reasonable.

    It’s basic economics. If you subsidize something, you’ll see more of it. If you see more of it, you’ll eventually see it where it’s not even necessary.

    And that’s how we hit $10 trillion in student loan debt.

    No, it’s not worth it.

    (Full disclosure: I have student loans, and half of them are subsidized. “Subsidized” just means the federal government pays the interest while you’re still in school — unsubsidized loans earn interest from the day they’re issued. When the loans go into repayment, you’re on the hook for all the interest earned from that point on. “Subsidized” loans only “save” you maybe a couple hundred bucks per loan. It sounds a lot better than it is.)

    So my take is, go ahead and cut the subsidized loans. It costs the government a lot, doesn’t save the individual student all that much, and will make some people re-think whether they really need to go to college.


mochajava76 | May 24, 2017 at 11:42 am

i work at a small private school in New England. This would be catastrophic for many colleges and universities. Staff and Faculty at these schools are not eating caviar and filets for lunch. Our budget has already been drastically cut, and more cuts are coming.

I don’t see how families would send their kids to school without subsidized loans. Most people don’t have the $60-80K set aside.

I just did an extremely quick search and found that Student loan delinquency rate is 11.2% (90+ days delinquent or in default). So 88+% are fairly current. Is that a good reason to blow the whole system up?

What will this do to the general conservative plan for changing the culture of this country? If we want to retain the majority in the House and Senate, I don’t think draconian cuts like this are advantageous.

    Paul in reply to mochajava76. | May 24, 2017 at 2:27 pm

    There is now 1.5 Trillion (with a T) in student debt in the US. This is uncollateralized debt. An 11% default rate is heinous.

    Almost a decade ago we had an economic crisis because our politicians pandered endlessly about how “…every American deserves the American dream of home ownership…” and they pumped money into the housing market until the bubble popped and cratered the global economy.

    Now they’re pandering again about how every kid deserves a college education. They’re pumping up another bubble and it will pop and once again, like rats, they’ll scramble for cover and try to place the blame elsewhere.

    The more you subsidize something, the more of it you get and the higher the price of it goes. How about we get the government out of the education business?

    If an education is worthwhile it will have market value and private lenders will be there to finance it. Or kids can always work their way through school like in the old days. Take the “free” government money out of the system and the prices, supply and demand will adjust back to reality quickly enough.

nordic_prince | May 24, 2017 at 11:55 am

Maybe, just maybe, if student loans were back in the hands of private lenders again, we would have fewer “XYZ studies” majors going into debt, because the private lenders would refuse to finance garbage degrees that go nowhere and do not result in productive citizens who make positive contributions to society.

    … the private lenders would refuse to finance garbage degrees that go nowhere and do not result in …

    … financially-secure job-holders who are able to repay their loan debts.

    There. FTFY. 😉

David Breznick | May 24, 2017 at 5:33 pm

Very interesting LI -comments- debate. Seems like the fiscal conservatives won . . . like always.