It’s been a whirlwind week. Last week’s leaked budget documents from the Trump administration showed proposed cuts to critical student loan programs including Public Service Loan Forgiveness, as well as major changes to income-driven repayment plans. The proposals sparked panic; hundreds of thousands of student loan borrowers have made major life decisions – selecting specific careers and specific repayment plans – in reliance on the continued existence of these programs. To have the rug pulled out from under them would be disruptive and unfair, and would likely be the basis of viable legal challenges.

After just a few days, we have some important updates on some of these reforms. Some good news, and some bad. Read on.

Current Student Loan Borrowers Would be “Grandfathered In” to Public Service Loan Forgiveness

Yesterday, Dept. of Education officials held a conference call with reporters at major media outlets and confirmed that the proposed de-funding of Public Service Loan Forgiveness would be limited to borrowers taking out new student loans on or after July 1, 2018. In other words, current borrowers repaying their student loans and on track for Public Service Loan Forgiveness would not be impacted, and would effectively be “grandfathered in.” This matches specific language in the budget proposal itself, and would avoid the potential legal and political problems of harming people who are already invested in the program.

While this is good news for current borrowers, I still have major concerns about the legality of defunding the program while it still remains intact in statute. In addition, I’m concerned about how the Dept. of Education will handle current borrowers seeking Public Service Loan Forgiveness. I also think that attacking Public Service Loan Forgiveness (via a Congressional repeal or not) without addressing other relevant issues, such as the costs of higher education, is dangerous. But bottom line here is that we have some good news for current student loan borrowers.

Current Student Loan Borrowers Would Also be “Grandfathered In” to Income-Driven Repayment Plan Programs

In their call with reporters, Dept. of Education officials confirmed that the proposed changes to income-driven repayment plans (including changing the payment formulas and repayment terms for borrowers on ICR, IBR, PAYE, and REPAYE) would also be limited to borrowers taking out new student loans on or after July 1, 2018. This means that current borrowers repaying their student loans under one of the existing income-driven repayment plans should be able to remain on those plans. This is more mixed news because the proposed “new” income-driven repayment plan seems (on the surface, at least) to have somewhat better terms compared to ICR and IBR, but somewhat worse terms than PAYE and REPAYE. It’s unclear if current borrowers would have the option to select the new plan.

Major Student Loan Servicing Changes Moving Forward

While not part of the President’s budget proposal, the U.S. Dept. of Education has proposed massive changes to student loan servicing. Currently, servicing operations for Dept. of Education student loans are handled by four major companies – Navient, NelNet, GreatLakes, and FedLoan Servicing/PHEAA, along with a handful of smaller companies. The Dept. of Education is proposing to scrap this model and award a single servicing contract to one company, which would service all of the Dept. of Education’s student loans.

I think this would be a deeply concerning move. As it stands, student loan servicing is a mess, and the current contractors seem to barely be able to handle their own portfolios; how can we expect any one of them to do a better job with four times their current volume? Furthermore, shifting around borrower accounts between servicers would be enormously disruptive to millions of borrowers, as we saw in 2012-2013 during the last major servicing shuffle. And ultimately, without proper oversight and competition, servicers will have little incentive to improve their operations.

Perhaps the most concerning piece of news about this proposal? Navient and FedLoan Servicing/PHEAA – two companies that have been widely panned as failures in student loan servicing – are under consideration.

Some Final Thoughts

Obviously this is a troubling and uncertain time for many student loan borrowers. Hang in there. The more information we have, the better equipped we will be to deal with these issues. Some important final points:

• The proposed changes to Public Service Loan Forgiveness and income-driven repayment are budget proposals. Remember, only Congress can draft and pass a budget. So this is not something that the President can do unilaterally.
• The proposed servicing changes are not part of the budget proposals, and can be implemented without Congressional intervention. So unfortunately we will have less of a “say” in the servicing structure of Dept. of Education loans.
• That said, now is the time to contact your elected officials. Call or write your congressperson and both of your senators. Make sure they know that you are a constituent and a voter, and that these issues are important to you.