Analysis: Borrowers Would Pay More in Trump Plan

January 13, 2017

An analysis released by NerdWallet this week found that student loan borrowers would pay more each month under an income-driven repayment proposed by President-elect Donald Trump, compared with the most widely available existing income-driven plan.

But NerdWallet also found that, including interest, borrowers earning low salaries would pay less over the lifetime of the plan because of a shorter debt forgiveness timeline. Borrowers with higher salaries would also pay more in federal debt because they would take longer and incur more interest to pay off their loans.

There are currently four income-driven repayment plans for federal student loan borrowers. The REPAYE plan, which NerdWallet compared to Trump’s campaign proposal, is not the most widely used plan but is most widely available to borrowers. It caps monthly loan payments at 10 percent of discretionary income. Remaining student loan debt would be forgiven after 20 or 25 years, depending on whether the loans were taken out before or after July 2014.

Trump’s plan, which he outlined in an October speech, would include a 12.5 percent cap, but it would shorten the debt forgiveness timeline to 15 years.

NerdWallet noted that it’s not clear from Trump’s comments whether his cap would apply to discretionary income or all borrower income. It’s also not clear whether the shorter debt forgiveness timeline would apply only to new borrowers or retroactively.

The analysis looked at three different income levels of student loan borrowers and found those with the highest annual income ($40,000) would see the biggest increase in monthly payments -- $43 under the Trump plan versus REPAYE.

Brianna McGurran, who specializes in student loan issues for NerdWallet, said which plan appears more appealing could depend on a borrower’s financial situation.

“Are they so strapped at the end of the month that they can barely pay their rent and bills? If they are more concerned with having a light at the end of the tunnel, knowing they’re not going to have loans after 15 years, maybe that’s what they’d prefer,” she said.

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