President Trump’s Leaked Budget Proposal & PSLF

Ah, leaks. This time, it’s with President Trump’s budget proposal, and we get a glimpse of his upcoming budget proposal about a week early, thanks to a rogue Education Department employee.

From the leak, we have learned that President Trump proposed to:

1. “[E]nd loan forgiveness for public servants.”
2. “[R]eplace five income-driven student loan repayment plans with a single plan”
3. Ror undergraduate borrowers: “raise the maximum payment to 12.5% of income, but shorten the payment period to 15 years.”
4. For graduate borrowers: raise the maximum payment to 12.5% “for longer (30 years),” as opposed to the current 25 years.

Will these proposals become final? Well if you recall Obama’s proposed budget cut (remember the famous “cap” on PSLF, which obviously never came to fruition?), presidential budget proposals are merely suggestions. Here’s a brief overview of the US budget process:

1. “[B]egins when the President submits this budget proposal request to Congress.”
2. “The President’s budget submission is referred to the House and Senate Budget Committees and to the Congressional Budget Office (CBO).”
3. “There is no obligation for either or both houses of Congress to pass a budget resolution. There may not be a resolution every year; if none is established, the previous year’s resolution remains in force.”
4. “After both houses pass a budget resolution, selected Representatives and Senators negotiate a conference report to reconcile differences between the House and the Senate versions. The conference report, in order to become binding, must be approved by both the House and Senate.”
5. “The budget resolution is not legally binding but serves as a blueprint for the actual appropriation process, and provides Congress with some control over the appropriation process. All new discretionary spending requires authority through enactment of appropriation bills or continuing resolutions.”

In other words, the President suggests; Congress decides. But then worst case scenario, if Congress does decide to end PSLF, we strongly believe that this end would apply to prospective borrowers and NOT retroactively.

End of PSLF: Prospective or Retroactive?

Most experts expect any end to PSLF to only apply to new borrowers, saying current borrowers will “probably” be grandfathered in.

One of the strongest arguments for existing borrowers to feel confident in their access to Public Service Loan Forgiveness in its current form is the incorporation of PSLF into the Master Promissory Note which details the contractual terms of federal student loans. The MPN explicitly incorporates the Higher Education Act and its amendments (https://studentloans.gov/myDirectLoan/launchMpn.action):

“A public service loan forgiveness program is also available. Under this program, the remaining balance due on your eligible Direct Loan Program loans may be cancelled after you have made 120 payments on those loans (after October 1, 2007) under certain repayment plans while you are employed in certain public service jobs.”

We will keep you updated on President Trump’s proposed budget when it is release this coming week.