Liberals are jumping on President Donald Trump’s budget and its proposed student loan reform. In particular, they are bemoaning the elimination of the “public service loan forgiveness” program. If you read the headlines, they accuse Trump of slashing and burning a program that benefits well-meaning students.
Those criticisms are exaggerated. In reality, this program benefits the wealthy most, and the beneficiaries will still be eligible for student loan forgiveness — just not as quickly.
The truth is that the so-called “public service loan forgiveness” (PSLF) program has been abused and mostly benefits the most successful Americans. The program was started in 2007, and by 2012, just 25,600 people qualified for the program. Then, the Obama administration exponentially expanded the program to benefit 553,000 people by 2016.
Why the dramatic increase?
Well, as according to a Brookings Institution report by Jason Delisle, “Both were enacted in 2007, but the Obama administration enacted policies to make them significantly more generous in 2010, 2012, and again in 2015.” In fact, one-in-four American workers fit under this umbrella, according to the Government Accountability Office (GAO). So, in other words, jobs that truly aren’t public service still qualify. It’s well beyond teachers, firefighters, and policemen.
And, some would argue that even jobs in STEM fields are public service because they help America’s competitiveness with other countries. Of course, jobs in high economic demand weren’t in the Obama administration’s definition, even though it would have to benefit the economy. In fact, almost no business workers qualify for this forgiveness.
Instead of offering forgiveness to those who need it most, this program actually benefits those who need it least, on average. Delisle said, “The high loan balances among enrollees helps to expose that PSLF is really a de facto loan forgiveness program for graduate students, who can borrow without limit.”
Graduate students tend to both come from higher income households and land jobs with higher incomes after graduation. Yet, that is who this program was largely benefitting.
That’s why Delisle’s report for a center-left think tank argues that the program should be eliminated and replaced by an IBR (Income-Based Repayment). He said, “Time and time again, policymakers make the claim that the purpose of PSLF is to ensure borrowers are not constrained in their career choices by unaffordable student loan payments. Yet IBR does much to further that goal because it sets a borrower’s payments to an affordable and fixed share of his income—and it provides loan forgiveness.”
Instead of forgiving those who statistically end up being the most fortunate, he suggests forgiveness based on income.
That is exactly what Trump’s plan adopts. CNBC reports, “Under Trump’s plan, borrowers would contribute 12.5 percent of their income if they chose a repayment plan instead of the 10 percent required under current repayment plans. After 15 years in a repayment plan, borrowers could have their debt forgiven. Currently, borrowers in repayment plans have to wait 20 or 25 years to have their loans canceled.”
Trump expands student loan forgiveness for those with low-income and removes a system which helps the rich most.
One could also question the merits of using taxpayer money to subsidize workers to exit businesses and enter non-profit and government sectors. By forgiving loans of those who work outside of the business economy, the best and brightest are driven out of the private sector and into government. China and India are kicking our butt in modern economic fields. Instead of incentivizing the best and brightest to enter those fields, the Obama administration paid them to work in government and non-profits. Some could argue we should be subsidizing students to enter fields the economy needs most.
Every borrower with federal loans will qualify for the same income-based aid under Trump’s plan. This switch will save the nation $27 billion over a decade, while still offering aid to every American. Instead of slamming Trump for ‘cutting student aid,’ he should be praised for helping the less fortunate and creating a fairer process.