Student loan borrowers find themselves in a time of great uncertainty. The most affordable repayment plan is currently tied up in litigation, and fears about the incoming presidential administration have caused panic among many borrowers.
Tracking these developments and having a backup plan in place are both prudent moves to navigate the inevitable changes that are forthcoming.
However, it’s also important not to assume the worst. Fear might generate clicks or social media popularity, but it isn’t a helpful emotion when it comes to financial planning.
Sherpa Note: I know many of you reading this have been let down by the administration of our federal student loan program. This article isn’t saying that everything will be fine or that borrowers should stop advocating for themselves.
Instead, I’m advocating for level-headedness when it comes to the decisions you make with your student loans.
Many Student Loan Programs Are on Solid Legal Footing
One of the biggest concerns among many borrowers is that student loan forgiveness and income-driven repayment might be eliminated.I don’t think this fear is grounded in reality.
Borrowers have many protections in place that should safeguard these resources.
Existing Legislation
The Public Service Loan Forgiveness (PSLF) program was created by an act of Congress in 2007. Likewise, the Income-Based Repayment (IBR) plan was also created by statute.
To eliminate PSLF or IBR—and the forgiveness that comes with them—would require new legislation passing through Congress. Such legislation seems unlikely at this time.
Master Promissory Notes
When you get federal student loans, you’re required to sign a Master Promissory Note (MPN). This is your contract with the federal government.
The MPN includes language about the following income-driven repayment (IDR) plans: ICR, IBR, PAYE, and REPAYE. It also contains information about PSLF.
Because of this contract, prior attempts to limit the PSLF program only applied to new borrowers and new loans.
Political Risks to Eliminating Federal Student Loan Borrower Protections
Student loans have undoubtedly become a political football. This has been a negative development for borrowers, as we’ve seen many rule changes and legal challenges. However, borrowers shouldn’t automatically assume the worst when the political tides shift.
Changes at the Margins Are Unlikely
Forgiving all student loans is popular with some groups and unpopular with others. However, most student loan policy isn’t as divisive on a large scale.
Borrowers in repayment might care deeply about how discretionary income is defined, but subtle changes that hurt borrowers are unlikely to sway the general population. As a result, politicians may not see much benefit in making modifications that could alienate large segments of voters without pleasing their supporters.
Big Changes May Not Be a Priority
Political scientists often use the term political capital to describe the amount of influence a politician or party can spend pursuing their agenda. Even an administration that’s hostile to existing student loan programs may decide to leave them in place if other policies take precedence.
With a razor-thin margin in the House of Representatives and the Senate filibuster protecting the minority, any new legislation will face significant obstacles. The administration is likely to focus on other issues before tackling student loans.
In other words, leaders have a finite amount of political capital and will likely use it on their highest priorities. At this point, comprehensive student loan reform doesn’t appear to be at the top of the list.
The Lesson: Devastating Changes Are Not a Foregone Conclusion
My legal and political analysis here is fairly surface-level. I’ve explored these topics and specific student loan changes in greater detail elsewhere.
The important takeaway is that there’s still hope for borrowers and the programs they depend upon. Even the most pessimistic borrower should acknowledge the possibility that the worst-case scenario might not happen.
Recognizing a range of possible outcomes is critical when it comes to planning ahead and developing a robust student loan strategy.
Planning for the Worst vs. Assuming the Worst
Someone who plans for the worst might consider what they would do if their loans aren’t forgiven in the coming years. They might also think about how they’d handle higher student loan payments. Both are reasonable exercises.
Someone who assumes the worst might take more extreme actions. They might quit a PSLF-qualifying job they love in favor of a less desirable but higher-paying private-sector job. Or they might take out a second mortgage on their home to pay off student loans. Such drastic measures could be a huge mistake.
Where Assumptions Become Expensive Mistakes
Abandoning PSLF or quitting repayment altogether could be devastating both financially and emotionally. Lost forgiveness opportunities, late fees, and additional interest charges are all possible outcomes of rash decisions.
No one has all the answers right now, but one thing is certain: panic and impulsive choices are not the solution.
So there’s supposedly a budget reconciliation bill on the table that includes repealing the save plan. Supposedly existing loan holders would have access to the previous plans. Only problem for me is I only qualified for REPAYE or Old IBr and Old IBR sucks. Does a repeal of Save take REPAYE with it , or revert back to it? Any idea?