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4 changes we might see to federal student loan legislation in 2019

How new laws could affect forgiveness programs, repayment plans and more.

Congress and the current administration are considering making changes to how student loans work in this country. These changes could see the government giving more control to private companies. It could also affect how repayment and forgiveness works for borrowers.

What are the current student loan regulations?

Federal and private student loans are governed by several federal laws. These include the Higher Education Opportunity Act of 2008, which sets the standards for which schools can qualify for federal aid, and the Student Aid and Fiscal Responsibility Act of 2010, which established the Direct Loan program and added more options for income-driven repayments.

Several other laws have had effects on how student loans work. For example, the Tax Cuts and Jobs Act of 2017 exempted borrowers who qualified for forgiveness due to permanent disability or death from paying income tax on the forgiven portion of their federal student loans.

What is the Federal Student Aid Ombudsman Group?

The Federal Student Aid (FSA) Ombudsman Group is a neutral branch of the Department of Education tasked with handling and resolving problems with federal student loans. If you’re having trouble with your student loan servicer or want to learn more about your options for deferment, forbearance or student loan discharge, you can file a complaint with the FSA Ombudsman.

Once the FSA Ombudsman receives your complaint, it works with you and your servicer to come to a satisfactory solution for everyone.

4 changes we might see to federal student loan legislation in 2019

There are several potential legal changes that could affect how you take out and repay your federal and private student loans. While none of these are set in stone yet, they’re worth watching out for.

1. Public Service Loan Forgiveness may be discontinued

The Trump administration and Congress have both proposed bills to defund or completely eliminate the popular Public Service Loan Forgiveness Program (PSLF). Established by former President George W. Bush in 2007, PSLF allows borrowers who worked in an eligible government or public service job to have their federal student debts canceled after making 10 years of income-based repayments.

It was intended to encourage college graduates to go into public service. But miscommunication between the federal government and FedLoan, the servicer tasked with handling applications, meant that 99% of the first round of applicants were denied.

What this could mean for borrowers

Repealing the act that created PSLF or otherwise defunding the program wouldn’t affect the 1% of borrowers who were approved. But it could mean that new borrowers who chose to work in public service with the hopes of getting their loans forgiven are out of luck.

If you were denied for technical reasons — you incorrectly completed a form or didn’t submit enough paperwork — act fast and reapply as soon as possible.

2. Federal student loan repayment plans may change

The Trump administration has also proposed consolidating the four income-driven repayment (IDR) plans now available to federal student loan borrowers into one. Currently, low-income borrowers can pay off their student loans with between 10% and 20% of their income over 20 to 25 years, after which their loans would be forgiven.

What this could mean for borrowers

There are three main ways the proposed income-driven repayment plan would affect borrowers:

  • Lose more of your paycheck. Most current IDR plans require you to pay 10% of your post-tax income. Trump’s plan would increase this to 12.5%.
  • Pay less for undergraduate loans. Undergraduate student borrowers could have their loans forgiven after making 15 years of income-driven repayments — currently it’s at least 20 years.
  • Pay more for graduate loans. Graduate students wouldn’t be able to have their loans forgiven until making 30 years of income-driven repayments under the proposed plan.

3. It may become easier to discharge student debt during bankruptcy

The Department of Education is considering reworking how it defines undue hardship to make it easier for borrowers to include federal student loans when filing for bankruptcy. A proposed Private Student Loan Bankruptcy Act would also allow borrowers to have private student loans discharged during bankruptcy.

Currently, you can have your federal student loans discharged if you file for Chapter 7 or Chapter 13 bankruptcy and the judge determines the following:

  • Paying your student loans would prevent you from maintaining a minimal standard of living.
  • You’ve made an earnest effort to repay the loans before filing for bankruptcy.
  • You’d struggle to pay off your loans for most of the rest of their terms.
What this could mean for borrowers

Congress, which oversees bankruptcy law, hasn’t passed any specific legislation. But it could mean your student loans aren’t as untouchable as they once were if you decide to file for bankruptcy. Bankruptcy is meant as a last resort option, however, so consider all your debt relief options first before you file.

4. Federal student loans may be originated by private lenders

The Trump administration has been considering allowing banks and other private lenders to fund federal student loans, rather than having all of the funds come out of the government’s budget. This might mean borrowers could end up with interest rates influenced by the lending market rather than being fixed by Congress.

What this could mean for borrowers

Working with private lenders could affect the application process and terms of federal student loans. Applications might vary between borrowers, and students could see different interest rates. Customer service might also be the responsibility of private companies, as opposed to the government.

Are student loans regulated on a state level?

Yes, many states have additional student loan regulations, on top of federal student loan laws. Several states have passed their own student loan bill of rights to protect consumers even more than the federal government can.

Interested in borrowing? Compare student loans

Bottom line

Your options for repaying your student loans might seriously change in 2019. However, most of these proposals are just that — proposals. This makes it difficult to tell what the final changes might be — if any. Borrowers who rely on income-driven repayment plans or considering PSLF might want to pay special attention, since these changes could affect them the most.

Learn more about how student loans work by reading our guide to financing for college.

Frequently asked questions

  • When did the US government stop giving banks subsidies for student loans?

The US government stopped working with banks to provide student loans in 2010 with the passage of the Student Aid and Fiscal Responsibility Act. This act launched the Direct Loan program, which made the federal government the only resource for taking out federal student loans.

What’s the legal limit to how much I can borrow?

The federal caps all financial aid at your school’s cost of attendance (COA). This not only includes loans, but also scholarships, grants, work-study and any other type of financial aid.

So, aside from limits set by a federal or private loan program, the maximum you can borrow is your COA with any other aid subtracted.

  • How do changes to the fed rate affect my student loan?

When the Federal Reserve changes interest rates, it can affect new and current student loans in a couple of ways. With federal loans, the fed rate might influence the interest rate Congress sets for new student loans.

It can also influence the fixed rates that lenders charge on new private student loans, as well as the variable rates on new and current private student loans. Read our guide to how the fed rate works for more details.

  • How much can I deduct in student loans from 2018?

Deduct up to $2,500 you made in interest payments on student loans on your 2018 taxes. Check out our article on student loans and taxes to learn more about how they can affect your tax return.

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