July 1 marks the beginning of a new year for federal financial aid for higher education, bringing changes that will affect the millions of Americans who use these programs. In loan servicing, the department eliminated babysitting requirements for the servicer to provide more proactive assistance—such as more calls and greater outreach—to borrowers with a high risk of default. It took no babysitting to grant the loan, it should take no babysitting to collect the loan.
Trump’s budget proposes to cut $143 billion. This includes $39 billion by ending subsidized Stafford Loans for new borrowers. Every year, this program provided interest-free loans to 6 million borrowers. It also cuts another $76 billion by creating one plan for new borrowers to pay their loans based on their income. It would require borrowers to pay a larger share of their income each month than most plans available today. The president’s budget also proposes cutting another $27 billion by eliminating Public Service Loan Forgiveness, a benefit that erases a borrower’s outstanding debt after 10 years of public sector work.
In addition to the student loan changes, the Trump budget request also suggests cutting billions from grant programs. The largest is a $3.9 billion hit to the rainy-day fund for the Pell Grant program. Finally, the proposed budget includes a series of other cuts to college access programs—$193 million; some institutional support programs—$86 million; and funds for childcare on campus—$15 million.
On June 14, the Department of Education announced plans to pause and rewrite regulations around two major consumer protection regulations. The borrower defense rule provides a process for defrauded borrowers to get loan forgiveness; creates conditions for holding schools financially accountable when problems arise; bans the use of mandatory arbitration provisions that prevent students from taking their schools to court; and provides a longer time frame for students to get discharges when their school closes, among other things.
Restoring the ability for collection costs on some defaulted borrowers was one of the first things DeVos did on higher education. This change applies to borrowers with certain types of older debt who immediately attempt to resolve a default. The Obama administration attempted to prevent the companies that were collecting on these loans to charge the borrowers a fee. However, DeVos reversed course and will allow a fee.
Other positive actions are also in the works including moving the Office of Federal Student Aid to the Department of the Treasury and loosening the rights on civil rights investigations, including issues around transgender students as well as sexual assault at institutions of higher education.
Keep up the good work.