Trump’s Latest Budget Proposal Would Deepen the Student Debt Crisis

Copies of President Donald Trump's budget for fiscal year 2021 are prepared for distribution at the Government Publishing Office, February 6, 2020.

This column contains a correction.

Behind the scenes, the Trump administration has reportedly been fighting for months about how to devise a student debt plan that could compete with proposals from progressive leaders. It’s not clear yet whether it will achieve this. What is clear, however, is that the draconian cuts to higher education programs in the new White House budget proposal would heap debt on millions of students in this country.

The FY 2021 budget proposal, released Monday, would cut more than $2 billion in spending just next year in financial aid, the Federal Work-Study Program, and other forms of support, much of which is geared toward low-income students and students of color. It would saddle borrowers with an extra $70 billion in costs over a 10-year period by ending subsidized loans and eliminating Public Service Loan Forgiveness. And it would put college further out of reach for American families by allowing the value of the Pell Grant to decline. Like previous budgets, it also proposes some measures that could mitigate some student debt, such as a proposal that would seek to hold colleges accountable by sharing some of the risk in student loans. However, risk sharing has mixed support among members of Congress. There are other small, positive proposals such as restoring Pell Grant access for incarcerated students and automatically enrolling severely delinquent borrowers into income-driven repayment plans, but these are outweighed by the harm done with other moves.

This is no way to reject “the downsizing of America’s destiny,” as Trump claimed to be doing in his State of the Union address last week. This budget does quite the opposite. It is an overt bid for the higher education system to abandon any aspiration to offer access and equity to all students.

Here is an overview of what the White House is seeking to do in its higher education budget.

Burden college students with more debt

The administration wants to eliminate subsidized Stafford Loans, which primarily go to students from low-income and middle-class backgrounds—two-thirds of whom also receive a Pell Grant. These loans don’t accrue interest while a student is enrolled or during a six-month grace period after graduation. Terminating subsidized Stafford loans would increase borrower costs by $18 billion over a 10-year period.

The budget also proposes ending the Public Service Loan Forgiveness Program. This program is designed to forgive student debt for public servants, including teachers, firefighters and social workers, after 10 years in repayment. While it has suffered from design and implementation woes, it plays a vital role in allowing individuals to pursue a life of public service. According to the budget, terminating the program would amount to $52 billion in additional debt payments for public servants over 10 years.

Finally, the administration is again using the budget to push a plan to consolidate the five current income-driven repayment plans into one plan. Income-drive repayment plans allow borrowers to pay their student loans based on a percentage of their income, which allows them to pay a lower monthly payment over a longer period of time. Under the single plan proposed, borrowers would pay more per month—12.5 percent as opposed to the 10 percent they pay under most of the current plans. Undergraduates would be in payment for 15 years instead of 20, but students with graduate debt would have to make payments for 30 years. While many undergraduate borrowers would pay less over the life of their loan, higher monthly payments could be very problematic for some. And graduate borrowers would face significantly higher repayment costs, in the form of both higher monthly payments and an additional five years to 10 years of payments.

The budget also proposes new annual and lifetime limits on Graduate PLUS and Parent PLUS loans. Parents would be limited to borrowing $26,500 for undergraduate students. Dependent undergraduate students with parents who have reached this limit would be eligible to borrow up to $57,500. Graduate students would be limited to borrowing $50,000 annually and a maximum of $100,000 over their lifetime.

Freeze the maximum Pell Grant

As the administration has done for the past three years, it has proposed freezing the maximum Pell award over the next decade. As the largest source of grant funds to help low-income students pay for college, Pell is the federal government’s primary means of expanding college access and opportunity. Last year, nearly 8.2 million students received $29 billion in Pell awards.

Without an increase indexed to inflation, the value of the Pell Grant will continue to decline relative to college costs. Today, the federal Pell Grant only covers roughly 30 percent of the average cost of attending a four-year public college, and without further increases—assuming tuition grows at its current rate—it would cover only 26 percent of the cost 10 years from now.

Estimates of the impact of a Pell Grant freeze on college affordability by state are available here.

Eliminate other grants and the Federal Work-Study Program

Once again, the White House is seeking to eliminate the $865 million Federal Supplemental Educational Opportunity Grant (FSEOG). While this grant is not distributed as equitably as the Pell Grant, 84 percent of FSEOG recipients are either independent students—who are likely to be low-income—or come from families that make less than $30,000 annually.

Nearly 1.7 million students benefited from the FSEOG program in 2019. The administration claims the program is “wasteful funding,” but in fact the declining purchasing power of federal student aid grants means that many students need more assistance, not less.

The budget would also slash $630 million from the Federal Work-Study Program, leaving only $500 million. Work-Study subsidizes jobs on and off campus for some 700,000 students each year. The administration claims it wants to “reform” Work-Study. While the program could be better targeted to low-income students, decimating its budget is a cynical approach to reform.

Estimates of the numbers of students and amounts of subsidized loans, Work-Study funds, and FSEOG grant aid received in each congressional district and by state can be found here.

Slash support for colleges and programs serving low-income and first-generation students

The White House is proposing to eliminate the $108 million Strengthening Institutions Program, which provides funds to support institutions that serve large numbers of students of color, such as those who are Black, Latinx, and Native American. These institutions play a critical role in ensuring that students of color have the support necessary to complete college.

The administration’s budget also revives a proposal to spread remaining funding for minority-serving institutions more thinly among a larger number of colleges, which might result in awards so small as not to be useful.

The budget also seeks to dramatically shrink programs that help low-income and first-generation students prepare for and succeed in college. It would cut $140 million out of the $1.09 billion TRIO program, which provides support to 812,000 students.* This support ranges from tutoring and mentoring to research opportunities. It would eliminate entirely the $365 million Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP) initiative, which offers college preparation assistance to 560,000 elementary, middle, and high school students. The White House also wants to cut $38 million from the program supporting child care for the children of college students, leaving only $15 million in the budget.

Conclusion

Fortunately, Congress—including many of the president’s allies—has spurned this administration’s previous budget proposals. American higher education is already unaffordable and deeply inequitable. This budget would force millions of students into borrowing more, and then it would make that debt more costly to pay back. Carrying out this budget proposal would be devastating to the dreams of millions of students, and Congress must once again resist the White House’s callous vision.

Viviann Anguiano is an associate director for Postsecondary Education at the Center for American Progress. Marcella Bombardieri is an associate director of Postsecondary Education at the Center. Antoinette Flores is the director for Postsecondary Education at the Center. Marissa Navarro is a special assistant for Postsecondary Education at the Center. Taseen Shamim is an intern with the Postsecondary Education team at the Center. Victoria Yuen is a policy analyst for Postsecondary Education at the Center.

* Correction, February 10, 2020: This column has been updated to say that the FY 2021 budget would cut $140 million out of the TRIO program.