The Future

Prognostication is a uniquely human trait that, at least when it comes to matters of money, we fail at as a species. You can’t time the market, professional investors can’t beat the index over the long term, and no one can predict interest rate changes. The same could easily be said for forecasting changes to student loan terms and repayment programs.


The future of PSLF

The multimillion-dollar question is the fate of PSLF. The projected costs and utilization of this program are far beyond the initial estimates, and it seems self-evident that both lawmakers and the public will not enjoy the coming news barrage of millionaire neurosurgeons getting their debt wiped away while driving BMWs. Even with a growing desire (on the Democratic side) to make college free, that doesn’t mean the current iteration of unlimited non-means-tested forgiveness is likely to last forever.

On the other hand, even when/if PSLF changes or is canceled in the future, the current PSLF program is baked into the language of the master promissory note you signed when you took out your loans.

Other than simply defunding the program and dealing with the inevitable lawsuits, it’s hard to see how the feds could legally ruin the program for old borrowers.

If you are curious, you can read a complete Direct loan master promissory note here: (if that link doesn’t work, just Google “master promissory note” and you’ll come across the government’s official example). Despite being a binding legal document, it’s written in mostly plain English.

For future borrowers, there are essentially four options:

  • The program might be canceled entirely
  • The forgiven amount might be capped (perhaps $57.5k)
  • A “means test” might be instituted such that high-income individuals will not have their loans forgiven.
  • REPAYE-type loophole closures (e.g. removing the payment cap and MFS-loophole) are applied to PAYE and IBR for new borrowers, thus ensuring that high-income years reduce the total amount of forgiveness.

Capping forgiveness was the proposal of the outgoing Obama administration. Trump, as we’ll discuss below, has favored option 1.


The 2017 Budget Proposal

This is the future that never was. The Obama administration’s 2017 budget proposal (again) proposed capping PSLF at $57,500 (the borrowing limit for undergraduates) to “protect against institutional practices that may further increase student indebtedness, while ensuring the program provides generous relief for students committed to public service.” A capped PSLF would change the calculus for most physicians. Certainly, those entering academia would enjoy the free money, but PSLF would lose its panacea-like status as a way to ignore the absurdly high cost of becoming a physician.

The proposal also recommended a single one-size-fits-all PAYE for new borrowers in 2017 that would also remove the payment cap (like REPAYE), ensuring that “high-income, high-balance borrowers to pay an equitable share of their earnings as their incomes rise.” That’s us, by the way.

They also recommended closing the married filing separately loophole in this new plan.

In the proposal, Perkins would become a DIRECT loan (and thus automatically eligible for IDR and PSLF), which is good, but then become unsubsidized (which is bad). In the end, the Perkins program was simply shuttered.

Overall, these recommendations were essentially just parting thoughts of an administration on its way out, particularly as the Democrats lost the presidency. If Clinton had won, then these proposals would likely illustrate the overall trend of things to come. But even then, I want to point out that the floated ideas never involved anyone who had already borrowed and made financial decisions and plans:

However, students who borrowed their first loans prior to July 1, 2017, would continue to be able to select among the existing repayment plans for loans borrowed to fund their current course of study.

If you’d already signed a promissory note, you would’ve received the old rules.


The Warren Ultimatum

Before she and many democratic candidates started proposing free college, there had been proposed legislation from Elizabeth Warren to allow loan holders to refinance their loans internally within the federal system to the new rates currently offered to current borrowers. A medical student graduating in 2012, for example, carries loans predominately at 6.8%. However new unsubsidized graduate loan rates are currently 6%. More recently, Warren and friends proposed the “Student Loan Tax Relief Act,” which would make all loan forgiveness under any program (i.e. IDR) tax-free.

Unfortunately, this hasn’t happened and, unless Democrats gain a majority in the Senate during the 2020 elections, anything like it is highly unlikely to happen in the near future. While it would be nice, it would be imprudent to consider this remote possibility when you make your plans.


The Trump plan

Candidate Trump unveiled his vision for student loans as a single choice IDR plan at 12.5% of AGI (essentially splitting the difference between PAYE and IBR) with all undergraduate loans forgiven after 15 years and graduate loans forgiven after 30 years. The PSLF program would be canceled.

Ironically, despite the discussion of the doctor’s loophole within public service loan forgiveness, Trump’s original plan would actually have resulted in even more “rich” private practice docs having their loans forgiven in large amounts. Likewise, imagine how much easier it would be to have your loans forgiven while working part-time or while saving for retirement. Part-time work is not eligible for PSLF, but with your reduced income, your monthly payments toward the 15-year universal forgiveness would’ve been low. Tack on as much pretax retirement saving as you can manage and voila, even better. The Congressional budget office did weigh in and unsurprisingly determined that this plan was costly and terrible. While undoubtedly true for the nation, it may have been nice for some physicians.

President Trump’s actual 2018 and 2019 budget proposals kept Candidate Trump’s plan for undergraduates but extended the forgiveness timeline to 30 years for graduate students. PSLF would be abolished alongside all currently offered IDR plans.

Why this? Because Trump’s stated goal is to get the government away from its large role in supplying and managing student loan debt, of which Americans already hold more than 1.4 trillion dollars. Certainly stretching the forgiveness timeline for graduate debt to 30 years would make private refinancing a better deal, which one imagines is partly the point. Betsy DeVos, Trump’s completely unqualified pick for Education Secretary, has spent her entire tenure trying to limit student loan consumer protections in order to protect business profits and ostensibly limit government spending, so it would seem nothing good would ever come down the pipeline during this administration.

That said, this proposal is being ignored. Presidents make “budget proposals,” but Congress makes budgets. Obama’s request for a much less seismic PSLF-cap went ignored for two years in a row despite Republican majorities in both the House and the Senate, and student loans remain a hot-button topic. Trump’s initial proposal was similarly ignored last year for the 2018 budget, and it returned without major change for the 2019 proposal.

If implemented, Trump’s administration has already specifically stated that the new single plan option would only be mandatory for new borrowers (those with their earliest loans in 2019). Current borrowers who have already signed their promissory notes under the old regime will be able to continue in the current convoluted scheme. Whether or not older borrowers would be eligible for the new plan or not could go either way, but the recent trend has been toward broad availability and simplification (so probably yes, but why would you want to?).

Republicans in Congress, for their part, unveiled their dream/plan in late 2017 for borrowers to pay 15% of their discretionary incomes toward student debt with no option for forgiveness. Instead, borrowers would make payments until they finally paid the amount due under a 10-year repayment plan (including interest). Now that would be a kick in the gut for a lot of borrowers, some of whom would likely be making student loan payments with their social security benefits!

While the Trump plan still does not address the cost of education, the Republican House plan would likely do more to combat cost inflation. Under this proposal, everyone pays for his/her education no matter how long it takes (presumably unless you die first). For people considering the value of another degree, the Republican tax cuts are a drop in the bucket if your wages will be garnished for your entire career because you never make enough to actually pay off your loans.

But for you, the current borrower, it’s important to keep in mind that the MPN is a legal contract. That contract currently includes PSLF, REPAYE, PAYE, IBR, and ICR as options. So, there’s a reason why grandfathering changes is the standard practice; it’s not just beneficence.

Fearmongers about changes to government repayment programs and forgiveness options usually have a vested interest in these changes, because any decrease in the quality of government programs or forgiveness will push people into the arms of private refinancing companies, from which they earn commissions. There is no evidence or precedent that any future changes will affect existing borrowers.


Final thoughts on the future

There is no doubt that the Congressional budget office grossly underestimated the cost of the public service loan forgiveness program. For one, they apparently had no idea how good of a deal it would be for many large volume graduate student borrowers. They also didn’t anticipate how the availability of large-volume forgiveness would essentially subsidize egregious tuition increases, not limited to but especially among private and for-profit law and medical schools, which often tout loan forgiveness as a hand-wavy means of writing off absurdly expensive costs of attendance. PSLF is here for now, but it’s definitely a target.

Despite the doom and gloom, the fact that congress recently temporarily expanded the program via the Temporary Expanded Public Service Loan Forgiveness (TEPSLF) would suggest that the end isn’t as close as some had feared.

Nevertheless, there are an increasing number of schools charging tuitions that would be financially catastrophic for those entering many specialties in the absence of loan forgiveness programs. For the unfortunate students of these institutions, the baked-in forgiveness of PAYE or REPAYE may ultimately be a viable choice, but it is undesirable for most borrowers to be on the hook for 20-25 years of payments (likely the bulk of their career) followed by a large lump sum due in taxes (even if this would please and profit the government).

The future is rapidly coming where becoming a doctor in many fields will be a financially unsound choice.


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