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The Worst-Case Scenario for Student Loan Borrowers in a Second Trump Presidency

A second Trump presidency could bring significant changes for student loan borrowers, including the taxation of forgiven debt, the end of new forgiveness initiatives, and uncertainty surrounding the SAVE plan and PSLF.

Written By: Michael P. Lux, Esq.

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Affiliate Disclosure and Integrity Pledge

Many of you have voiced concerns during student loan consultations about how a second Trump term could impact your financial futures. With the potential return of Trump to the White House, I thought it would be helpful to look at the possible implications for student loan policies and how they might affect borrowers.

Sherpa Thought: This article is not meant to spark a political debate or take sides in the upcoming election.

Instead, it is crafted to be an analysis of the potential consequences of the 2024 election for student loan borrowers.

Forgiven Student Debt: Taxed Starting in 2026

One of the first major concerns for borrowers is the taxation of forgiven student debt. Starting in 2026, student debt that is forgiven could be considered taxable income. This means that borrowers might face significant tax liabilities, potentially limiting the financial relief they experienced from forgiveness.

I’m still hopeful that the tax on forgiven student debt will be permanently eliminated, but a second Trump term likely increases the odds of the tax on forgiveness returning.

A Halt on New Help for Borrowers

During a second Trump presidency, it’s likely that initiatives to fix past issues, and the introduction of new repayment plans would cease. Borrowers should not expect new improvements or relief measures.

Cessation of Forgiveness Initiatives

President Biden has been aggressive about remedying past student loan issues with programs like the one-time account adjustment and temporary expanded public service loan forgiveness. These initiatives have provided significant relief to borrowers. However, Trump hasn’t shown any inclination to expand or fix existing federal student loan repayment programs. Under his administration, such programs would likely be halted, leaving many borrowers without anticipated relief measures aimed at easing their debt burdens.

Stagnation of Repayment Plans

The introduction of new repayment plans would also likely stop, meaning borrowers would not see new options designed to ease their repayment burdens. The focus would shift away from creating new, borrower-friendly policies, leaving many to rely on existing plans that may not fully address their financial needs.

SAVE Plan: A 50/50 Chance of Survival

The SAVE (Student Aid and Value Education) plan, which aims to provide financial relief to borrowers, faces uncertain prospects. Its survival is estimated at 50/50 under a Trump administration. The GOP has been largely opposed to the SAVE plan, and multiple lawsuits threaten its existence.

Challenges to Eliminate SAVE

Eliminating the SAVE plan would not be straightforward. It would require substantial time and effort to roll back the rules.

While Trump’s core supporters might favor the elimination of the plan, it doesn’t present a significant political victory he could boast about. Additionally, it would directly harm many of his supporters who benefit from the SAVE plan.

Rolling back an existing rule is difficult, increasing the likelihood that it survives.

Potential for Grandfathering Existing Borrowers

There’s also a possibility that the administration might grandfather in existing borrowers under the SAVE plan, allowing them to continue benefiting while preventing new borrowers from enrolling. This compromise could be a strategic move to avoid widespread backlash while still fulfilling a political agenda.

PSLF in a Second Trump Administration

The Public Service Loan Forgiveness (PSLF) program, which forgives the remaining student loan balance for borrowers working in public service for ten years, is another area of concern of many borrowers.

The good news is that PSLF is almost certain to survive. PSLF is established by statutory law, making it nearly impossible to eliminate without 60 senators’ approval.

However, the program could be made significantly more difficult to access.

In the past, many borrowers found it challenging to qualify for PSLF, and a second Trump administration might reinstate similar hurdles, reversing the recent ease of qualification.

Other Programs and Protections Remain

Income-Driven Repayment (IDR) forgiveness will likely still exist, as it is also protected by statutory law. The Income-Based Repayment (IBR) plan, another critical option for borrowers, is similarly safeguarded.

Looking beyond existing statutes, there are some additional protections for borrowers.

Master Promissory Note: A Key Guardrail

The master promissory note, which outlines the terms and conditions of federal student loans, serves as a key guardrail for borrowers.

Specifically, the REPAYE plan is mentioned in the master promissory note.

This means that even if the SAVE plan were eliminated, it would likely revert back to REPAYE, which carries many benefits similar to SAVE. It ensures that certain rights and protections cannot be easily stripped away, even by new administrative policies.

Complexity of the System

The complexity of the student loan system itself acts as a barrier to drastic changes.

Student loan programs have a meaningful impact on many lives, and while there is opposition to these programs, it is not a primary voting issue for many detractors. This complexity and the broad, deep-rooted benefits of these programs make significant overhauls less likely.

Final Thoughts

A second Trump presidency could bring several challenges for student loan borrowers.

The taxation of forgiven debt, the potential cessation of new relief measures, and the uncertain future of the SAVE plan and PSLF are key concerns.

However, statutory protections and the inherent complexity of the system provide some safeguards. Borrowers should stay informed and prepared for possible changes while advocating for policies that support their financial well-being.

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

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