Connect with us

Personal Finance

Student loan changes likely coming under Trump

Published

on

US President Donald Trump speaks to reporters while in flight on Air Force One, en route to Joint Base Andrews on April 6, 2025. 

Mandel Ngan | Afp | Getty Images

The Trump administration recently announced that it would begin a process of overhauling the country’s $1.6 trillion federal student loan system.

The potential changes could impact how millions of borrowers repay their debt, and who qualifies for loan forgiveness.

“Not only will this rulemaking serve as an opportunity to identify and cut unnecessary red tape, but it will allow key stakeholders to offer suggestions to streamline and improve federal student aid programs,” said Acting Under Secretary James Bergeron in a statement on April 3.

Around 42 million Americans hold federal student loans.

Here are three changes likely to come out of the reforms, experts say.

1. SAVE plan won’t survive

Former President Joe Biden rolled out the SAVE plan in the summer of 2023, describing it as “the most affordable student loan plan ever.” Around 8 million borrowers signed up for the new income-driven repayment, or IDR, plan, the Biden administration said in 2024.

The plan has been in limbo since last year, and in February a U.S. appeals court blocked SAVE in February. The 8th U.S. Circuit Court of Appeals sided with the seven Republican-led states that filed a lawsuit against SAVE, arguing that Biden was trying to find a roundabout way to forgive student debt after the Supreme Court struck down his sweeping loan cancellation plan in June 2023.

SAVE came with two key provisions that the legal challenges targeted: It had lower monthly payments than any other federal student loan repayment plan, and it led to quicker debt erasure for those with small balances.

More from Personal Finance:
Why the stock market hates tariffs and trade wars
Why Fed chair wears purple ties — ‘we are nonpolitical’
Don’t miss these tax strategies during the tariff sell-off

The Trump administration is unlikely to continue to defend the plan in court, or to revise it in its regulations, experts say.

“It’s difficult to see any scenario where SAVE will survive,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for federal student loan servicers.

For now, many borrowers who signed up for SAVE remain in an interest-free forbearance. That reprieve will likely end soon, forcing people to switch into another plan.

2. End to loan forgiveness under other plans

The Trump administration recently revised some of the U.S. Department of Education’s other income-driven repayment plans for federal student loan borrowers, saying that the changes were necessary to comply with the recent court order over SAVE.

Historically, at least, IDR plans limit borrowers’ monthly payments to a share of their discretionary income and cancel any remaining debt after a certain period, typically 20 years or 25 years. 

The IDR plans now open are: Income-Based Repayment, Pay As You Earn and Income-Contingent Repayment, according a recent Education Department press release.

As a result of Trump administration’s revisions, two of those plans — PAYE and ICR — no longer conclude in automatic loan forgiveness after 20 or 25 years, Buchanan said, noting that the courts have questioned the legality of that relief along with SAVE.

The Trump administration, through its changes to the student loan system, is likely to make at least some of those temporary changes permanent, said higher education expert Mark Kantrowitz.

Still, if a borrower enrolled in ICR or PAYE switches to IBR, their previous payments made under the other plans will count toward loan forgiveness under IBR, as long as they meet the plan’s other requirements, Kantrowitz said. Some borrowers may opt to take that strategy if they have a lower monthly bill under ICR or PAYE than they would on IBR.

3. Narrowed eligibility for PSLF

President Donald Trump signed an executive order in March that aims to limit eligibility for the popular Public Service Loan Forgiveness program.

PSLF, which President George W. Bush signed into law in 2007, allows many not-for-profit and government employees to have their federal student loans canceled after 10 years of payments.

According to Trump’s executive order, borrowers employed by organizations that do work involving “illegal immigration, human smuggling, child trafficking, pervasive damage to public property and disruption of the public order” will “not be eligible for public service loan forgiveness.”

For now, the language in the president’s order was fairly vague. Nor were many details given in the latest announcement about reforming the student loan system, which said the Trump administration is looking for ways to “improve” PSLF.

As a result, it remains unclear exactly which organizations will no longer be considered a qualifying employer under PSLF, experts said.

However, in his first few months in office, Trump’s executive orders have targeted immigrants, transgender and nonbinary people and those who work to increase diversity across the private and public sector. Many nonprofits work in these spaces, providing legal support or doing advocacy and education work.

Changes to PSLF can’t be retroactive, consumer advocates say. That means that if you are currently working for or previously worked for an organization that the Trump administration later excludes from the program, you’ll still get credit for that time, at least up until the changes go into effect.

Continue Reading

Personal Finance

How Senate, House GOP ‘big beautiful’ bill plans differ

Published

on

Senate Majority Leader John Thune (R-SD), left, listens to Sen. Mike Crapo (R-ID), center, chair of the Senate Finance Committee, speak to reporters outside of the West Wing of the White House on June 4, 2025.

Anna Moneymaker | Getty Images News | Getty Images

Republicans proposed offering a tax break to tipped workers, as part of a package of tax cuts the Senate Finance Committee unveiled Monday. GOP lawmakers are trying to pass their multitrillion-dollar megabill in coming weeks.

The Senate measure — which aims to fulfill a “no tax on tips” campaign pledge by President Donald Trump — is broadly similar to a provision that House GOP lawmakers passed in May as part of a domestic policy bill.

In both versions, the tax break is structured as a deduction available on qualified tips. The Senate legislation defines such tips as ones that are paid in cash, charged or received as part of a tip-sharing arrangement.

Taxpayers — both employees and independent contractors — would be able to claim it from 2025 through 2028. Filers could take advantage whether they itemize deductions on their tax returns or claim the standard deduction.

Key differences in ‘no tax on tips’ proposals

However, the Senate proposal is different from the House version in two key ways, Matt Gardner, senior fellow at the Institute on Taxation and Economic Policy, wrote in an e-mail.

First, the Senate legislation would cap the tax deduction at $25,000 per year, while it is uncapped in the House bill, Gardner wrote.

Sen. Shelley Moore Capito: Not expecting any 'radical' changes to GOP reconciliation bill

Few workers would benefit from ‘no tax on tips’

A “no tax on tips” proposal seems to have bipartisan appeal in the Senate, which unanimously passed a similar standalone measure last month. Former Vice President Kamala Harris also supported a tax break on tips during her 2024 presidential campaign.

However, the tax break wouldn’t benefit many workers, tax experts said.

There were roughly 4 million workers in tipped occupations in 2023, about 2.5% percent of all employment, according to an analysis last year by Ernie Tedeschi, director of economics at the Budget Lab at Yale and former chief economist at the White House Council of Economic Advisers during the Biden administration.

Additionally, a “meaningful share” of tipped workers already pay zero federal income tax, Tedeschi wrote. In other words, a proposal to exempt tips from federal tax wouldn’t help these individuals, who already don’t owe federal taxes.

“More than a third — 37 percent — of tipped workers had incomes low enough that they faced no federal income tax in 2022, even before accounting for tax credits,” Tedeschi wrote. “For non-tipped occupations, the equivalent share was only 16 percent.”

Tax deductions reduce the amount of income subject to tax (or, taxable income) and are generally more valuable for high-income taxpayers relative to tax credits.

The Economic Policy Institute, a left-leaning think tank, said it believed a better way to help workers would be to raise the federal minimum wage.

A “no tax on tips” provision “gives the illusion of helping lower-income workers — while the rest of the legislation hands huge giveaways to the rich at the expense of the working class,” EPI economic analysts wrote Thursday.

Continue Reading

Personal Finance

Senate ‘big beautiful’ tax bill has $1,000 baby bonus

Published

on

Sen. Ron Johnson on reconciliation bill: We don't have time to get this right by July 4

How Trump accounts work

Not unlike a 529 college savings plan, Trump accounts come with a tax incentive. Earnings grow tax-deferred, and qualified withdrawals are taxed as long-term capital gains.

Under both the House and Senate versions of the bill, withdrawals could begin at age 18, at which point account holders can tap up to half of the funds for education expenses or credentials, the down payment on a first home or as capital to start a small business.

At 25, account holders can use the full balance for expenses that fall under those same guidelines and at 30, they can use the money for any reason. Distributions taken for qualified purposes are taxed at the long-term capital-gains rate, while distributions for any other purpose are taxed as ordinary income.

$1,000 baby bonus: Who is eligible

Young family with a baby boy going over finances at home.

Pekic | E+ | Getty Images

For children born between January 1, 2024, and December 31, 2028, the federal government will deposit $1,000 into the Trump account, funded by the Department of the Treasury, as part of a “newborn pilot program,” according to the Senate Finance Committee’s proposed text released on Monday.

To be eligible to receive the initial seed money, a child must be a U.S. citizen at birth and both parents must have Social Security numbers.

If a parent or guardian does not open an account, the Secretary of Treasury will establish an account on the child’s behalf. Parents may also opt out.

Trump account pros and cons

The White House and Republican lawmakers have said these accounts will introduce more Americans to wealth-building opportunities and the benefits of compound growth. But some experts say the Trump accounts are also overly complicated, making it harder to reach lower-income families.

Universal savings accounts, with fewer strings attached, would be a simpler alternative proposal at a lower price tag, according to Adam Michel, director of tax policy studies at the Cato Institute, a public policy think tank.

“I’m disappointed the Senate did not take the opportunity to improve these accounts,” Michel said. Still, “provisions that remain in both the House and Senate text, we should expect them to become law, and this provision fits that criteria.” 

Mark Higgins, senior vice president at Index Fund Advisors and author of “Investing in U.S. Financial History: Understanding the Past to Forecast the Future,” said the key is “if the benefits comfortably exceed the cost.”

According to the Committee for a Responsible Federal Budget, Trump accounts would add $17 billion to the deficit over the next decade.

Subscribe to CNBC on YouTube.

Continue Reading

Personal Finance

‘Big beautiful bill’ may cut student loan hardship payment pause

Published

on

Vitranc | E+ | Getty Images

One provision in Republicans’ “big beautiful” bill would narrow the relief options for struggling student loan borrowers. House and Senate Republicans both call for the elimination of both the economic hardship and unemployment deferment.

Those deferments allow federal student loan borrowers to pause their monthly bills during periods of joblessness or other financial setbacks, often without interest accruing on their debt.

Less attention has been paid to the GOP plan to do away with the deferments than its proposals to eliminate several student loan repayment plans and to establish a minimum monthly payment for borrowers.

The House advanced its version of the One Big Beautiful Bill Act in May. The Senate Committee on Health, Education, Labor and Pensions released its budget bill recommendations related to student loans on June 10. Senate lawmakers are preparing to debate the massive tax and spending package.

More from Personal Finance:
Here’s the inflation breakdown for May 2025
What’s happening with unemployed Americans — in five charts
The economic cost of Trump, Harvard battle over student visas

Nixing the deferments could have major consequences, said Abby Shafroth, director of the National Consumer Law Center’s Student Loan Borrower Assistance Project.

“I’m concerned this is going to lead more people to default on their student loans when they encounter a job loss, surprise medical expense or other economic hardship,” Shafroth said.

The Trump administration said this spring that the number of student loan borrowers in default could soon rise from more than 5 million to roughly 10 million in the coming months.

How unemployment, hardship deferments work

Under the Senate Republicans’ proposal, student loans received on or after July 1, 2026 would no longer qualify for the unemployment deferment or economic hardship deferment. The House plan does away with both deferments a year earlier, on July 1, 2025.

The unemployment deferment is typically available to student loan borrowers who are seeking but unable to find full-time employment or are eligible for jobless benefits, among other requirements, according to the National Consumer Law Center. Under the deferment, borrowers can pause their payments for up to six months at a time, and for a total of three years over the life of the loan.

The absence of the relief “means that for someone who lost their job and is struggling to keep their head above water, the government will demand monthly payments on student loans,” Shafroth said.

The bill comes as the share of entry-level employees who report feeling positive about their employers’ business prospects dropped to around 43% in May, a record low, according to a recent report by Glassdoor.

The economic hardship deferment, meanwhile, is generally available to student loan borrowers who receive public assistance, earn below a certain income threshold or work in the Peace Corps. The total time a borrower can spend in an economic hardship deferment is also three years.

The end of the deferments “eliminates one of the key benefits on subsidized loans,” said higher education expert Mark Kantrowitz.

Persis Yu, deputy executive director of the Student Borrower Protection Center, agreed.

“The ability of borrowers to pause payments and interest on subsidized loans during financial shocks and hardship is a critical benefit of the federal loan program,” Yu said.

The ability of borrowers to pause payments and interest on subsidized loans during financial shocks and hardship is a critical benefit of the federal loan program.

Persis Yu

deputy executive director of the Student Borrower Protection Center

Around 150,000 federal student loan holders were enrolled in the unemployment deferment in the second quarter of 2025, while around 70,000 borrowers had qualified for an economic hardship deferment, according to data by the U.S. Department of Education.

The absence of the deferments will push more federal student loan borrowers into a forbearance, experts say, during which interest continues to climb on their debt and borrowers often resume repayment with a larger bill.

Republicans say doing away with the payment pauses will encourage borrowers to enroll in repayment plan they can afford.

GOP: Bill helps those who ‘chose not to go to college’

Sen. Bill Cassidy, R-La., chair of the Senate Health, Education, Labor, and Pensions Committee, said in a statement on June 10, that his party’s proposals would stop requiring that taxpayers who didn’t go to college foot the loan payments for those with degrees.

“Biden and Democrats unfairly attempted to shift student debt onto taxpayers that chose not to go to college,” Cassidy said.

Cassidy said the higher education legislation, which also stretches out student loan repayment timelines, would save taxpayers at least $300 billion.

Continue Reading

Trending