Will Trump Repeal or Restrict PSLF?

Public Service Loan Forgiveness (PSLF) has long been a political target, with many borrowers fearing that a second Trump administration would eliminate the program outright.But instead of pursuing a broad PSLF repeal, the current strategy centers on more targeted efforts to restrict PSLF.Republicans previously attempted (and failed) to repeal PSLF back in 2017 when they had unified GOP control of Congress and the White House.This time around, the focus has shifted to new ways of limiting PSLF, with particular attention on physicians, dentists and other high-debt professional school borrowers.

Here are my latest thoughts on what the Trump administration is doing with PSLF, and what these changes could mean for current and future student loan borrowers.To get breaking news on PSLF and all things student loans related, make sure to sign up for our weekly student loan update.What happened with Trump's previous PSLF repeal attempts? Clients flooded my inbox with questions about the PSLF program when Trump first won the White House in 2016.And they continue to do so as student loan borrowers navigate ongoing changes and confusion under the current administration.

For those who don't know, PSLF allows federal student loan borrowers to work for a public or nonprofit employer for 10 years and receive tax-free loan forgiveness.For many borrowers burdened by massive student debt, student loan forgiveness eligibility through public service feels like their only hope.Obviously, given the recent successes of the PSLF program during the Biden administration, President Trump DID NOT repeal PSLF in his first term.And a full repeal of PSLF remains unlikely in his second term.

However, the Trump administration is pushing for new limitations that could impact future PSLF borrowers and those with certain employers.How PSLF is being targeted in Trump’s second term The Trump administration initially tried to eliminate residency and fellowship years from counting toward PSLF for physicians and dentists as part of its One Big Beautiful Bill Act (OBBBA).This would have been a major blow to PSLF borrowers, as residency is when borrowers make the lowest payments and can maximize progress toward forgiveness.If successful, this move could have prevented PSLF credit for crucial training years, effectively blocking many healthcare professionals from qualifying for PSLF.

However, this attempt failed after the Senate parliamentarian stepped in and ruled that residency and fellowship credit couldn’t be blocked for PSLF borrowers.As a result, residency and fellowship years still count toward PSLF eligibility for both current and future borrowers, preserving one of the most valuable aspects of the program for the medical and dental community.Even though this effort failed, the administration succeeded in narrowing PSLF eligibility in other ways.New loan caps narrow PSLF forgiveness While PSLF isn’t being repealed entirely, the OBBBA introduced new loan caps on federal student loans that will ultimately limit who can benefit from PSLF forgiveness.

Here’s why.For future borrowers in high-cost professional programs — such as medicine, dentistry, law and veterinary medicine — there’s now a $50,000 yearly borrowing cap and a $200,000 aggregate limit.The problem is that students in these programs often need to borrow well above these amounts to complete training.As a result, PSLF loan forgiveness may be limited for physicians and other professional degree holders.

These new loan caps could also influence who can realistically attend professional programs going forward since most low- and moderate-income households won’t be able to cover the gap between the total cost of attendance and the maximum loans allowed.Instead, future borrowers with the largest loan balances to forgive under PSLF (relative to their earnings) would likely be undergraduate borrowers considering how monthly payments are structured under the Repayment Assistance Plan (RAP).It's likely we'll see more teachers and nurses receiving PSLF with fewer physicians getting loan forgiveness.That said, even with the new loan caps, plenty of future borrowers will still qualify for PSLF.

The $200,000 aggregate limit remains substantial enough to provide meaningful forgiveness.Even if you’re a physician with high earning potential, you’ll still be able to access low payments during residency (thanks to the clear restrictions the Senate parliamentarian put in place) that will count toward PSLF.After residency, payments can be capped under the IBR Standard 10-Year cap, making forgiveness still attainable for most borrowers.Expect targeted PSLF-qualifying employer restrictions Rather than trying to eliminate PSLF entirely, the administration could use targeted strategies to influence which employers qualify.

Organizations that provide services viewed as conflicting with administration policies — such as certain legal aid or immigration services — could lose PSLF-qualifying status.Similarly, certain types of employers, like healthcare organizations, might face pressure to align with federal priorities under threat of losing PSLF eligibility for their employees.For example, employers that don’t cooperate with federal agencies such as ICE could potentially see PSLF used as a coercion tool.While this might affect only a subset of borrowers and employers, it represents one of the most significant tools the administration currently has to reshape PSLF without repealing it entirely.

How fear of PSLF repeal can cause huge mistakes Let me share a conversation I had with a client all the way back after the 2016 election that still holds true today.This borrower had a $200,000+ student debt balance and was incredibly worried about Trump repealing PSLF.Hence, they thought, “Why not go ahead and refinance to lock in a lower interest rate and pay everything off.” Otherwise, she could risk being in student loan debt for a decade or more if PSLF didn't work out, with unknown impacts on her overall financial health.If she stays on PSLF and files her certification paperwork, she's on track to save about $200,000 through debt cancellation.

If she refinances and avoids waiting around 10 years to find out PSLF doesn't exist anymore, she could save about $50,000.Let's think about this scenario as a professional gambler would.One outcome gives you savings of $200,000.The other outcome gives you savings of $50,000.

The two options are mutually exclusive, meaning PSLF can't exist and not exist at the same time.Therefore, if I wanted to decide what to do, I would multiply each of the numbers by the probability of each event and sum them.The great news for PSLF borrowers is that the chance of a full PSLF repeal is extremely low.What is the PSLF repeal probability? Let's look at some PSLF-related proposals in recent years.

The 2015 Republican PSLF repeal plan grandfathered in anyone currently holding federal student debt.It also allowed students enrolled in degree programs at the time of the repeal to continue borrowing PSLF-eligible loans until they graduated.The Democrats also effectively proposed their own repeal plan in former President Obama's budget around the same time.President Obama tried to limit PSLF to a maximum benefit of $57,500.

That effort failed due to resistance in his own party.In January 2017, Republicans had all the levers of power.Yet, they failed to repeal PSLF.During the Biden administration, the PSLF program was supercharged under the PSLF Waiver, with more than 1 million borrowers qualifying for PSLF under far more generous rules.

The Trump administration and Congressional Republicans recently attempted to restrict access to PSLF for resident physicians, but the Senate parliamentarian stopped this OBBBA provision from moving forward.Since Republicans tried very hard to repeal PSLF and failed in 2017, full PSLF repeal would likely fail again for the same reasons it failed in 2017.Specifically, PSLF repeal failed under the first Trump administration because Republicans did not have a filibuster-proof majority in the Senate (60 votes).The last time either party held that large a majority was during the 2009 financial crisis era, coincidentally when much of the new IBR program rules were passed as a tag along to the Affordable Care Act (ACA) health care bill.

Since PSLF is written into law, you'd have to convince at least a handful of Democratic Senators to go along with it.With several moderate Democrats retiring or losing their seats, the remaining members are more progressive and thus would be likely to oppose PSLF repeal strongly.So that means the probability of a full PSLF repeal is incredibly small (unless Republicans nuked the filibuster, which seems quite unlikely given their enthusiasm for it).PSLF changes would have to happen from an act of Congress with some measure of bipartisan support, not just because a president wills it.

Calculate the expected value of staying on PSLF Going back to the earlier example I used all the way back after the 2016 election, say you have $200,000 of projected savings under PSLF.Alternatively, assume you would incur losses of $50,000 in higher interest costs if you remain on the federal loan system and accrue unnecessary interest.Let's say PSLF repeal has a 10% chance of happening (to be clear, I think even that low number is way too high).The chance of PSLF sticking around in this hypothetical example would be 90%.

With these probabilities, the expected value of staying on PSLF for the borrower example I used is $200,000*0.9+(-$50,000)*0.1=$175,000.Even if the probability is 50/50 of PSLF repeal, staying on PSLF has a positive expected value in a case where a borrower has a six-figure student debt load.Therefore, if you're looking at PSLF logically as an investment professional, you need to stay on the program if your savings are significant.Still worried? Prepare like PSLF might end tomorrow (even though it won't) PSLF isn’t going away.

But some borrowers might be at risk of losing access to this loan forgiveness program due to the Trump administration's recent efforts to limit eligibility.Additionally, slow IDR and PSLF processing times are preventing millions of borrowers from accessing affordable federal student loan payments and receiving loan forgiveness or PSLF credit in a timely manner.So, borrowers need to be prepared to jump through hoops and trust that loan forgiveness is still an option for most borrowers despite the chaos and uncertainty we've all been experiencing.Of course, any new actions by the administration are likely to face litigation, and the outcomes aren’t fully predictable.

But even with that uncertainty, full PSLF repeal remains extremely unlikely.In a disastrous (and again, unlikely) scenario for borrowers where PSLF was repealed — or if you find yourself in one of the scenarios that could result in limited access to the program — you can probably insulate your finances.Borrowers in pursuit of PSLF fall into two camps.The first group could pay their student debt off if they wanted to, even if it would take additional years to do so.

They're pursuing PSLF because it's a better financial decision, not because it's their only option.The second group can never repay their student debt due to economic hardship or huge graduate or undergraduate loans.They would need to use income-driven repayment (IDR) forgiveness in the absence of PSLF.Borrowers in the first group will have debt-to-income ratios below 2.

They would refinance their loans and pay back their debt if PSLF went away.Borrowers in the second group will need to focus on saving and investing more in retirement and mutual fund accounts if PSLF ever disappears because 20 and 25-year IBR forgiveness is also written into the law even if PSLF was overturned.After creating tens of thousands of customized student loan plans for borrowers, we've found that your savings rate matters far more than what happens with your student loans.Hedge your risk against PSLF repeal.

Save aggressively outside of your retirement plan.If PSLF changes, then you can retool your loan strategy accordingly.P.S.If you are facing a six-figure student loan burden, check out how we create “PSLF & PSLF backup repayment plans” for your student loans.