What will a Donald Trump presidency mean for student loan consumers? He rarely mentioned higher education or the nation’s $1.3 trillion in student debt on the campaign trail, so the future is hazy.
With so much still unknown and to be worked out during the transition over the next few months, it’s too soon to tell what student loan borrowers can expect. But here are a few items that could be possible priorities in a Trump presidency and Republican-controlled Congress.
— Modification of income-based repayment: During the campaign, Trump proposed slightly modifying income-based repayment for federal student loans by allowing borrowers to pay 12.5 percent of discretionary income with any remaining balance forgiven after 15 years.
Current income-based plans allow for payments of 10 to 15 percent of discretionary income and forgiven balances after 20 to 25 years. Unless the proposal is meant only for existing borrowers, it is unclear how he would carry this out since earlier in the year his campaign said he wanted to reduce or remove the government’s role in student lending.
[Look at this side-by-side comparison of three income-based repayment plans.]
— Overhaul the federal student loan system: In May, Sam Clovis, the national co-chairman and policy director of Trump’s campaign, told Inside Higher Education that the Trump camp wanted to remove the government from student lending and restore that role to private lenders. Prior to 2010, federal student loans were either originated directly by the government — direct loans — or they were made by private banks with the backing of the federal government, such as Federal Family Education Loans.
The Trump administration has not said it would fight to remove all federal involvement from student loans, making it a system of only private loans or advocate for a federally insured program similar to the previous FFEL. Either way, the Student Loan Ranger thinks it would be incredibly difficult — and likely very expensive — to walk back the transition to 100 percent direct lending that’s occurred over the past six years, given that the Republicans don’t hold a filibuster-proof majority in Congress.
What’s all this mean for the student loan consumer? Federal loans have far more generous repayment options and generally lower interest rates than private loans.
Supporters of private student loans, on the other hand, believe a marketplace or market-driven approach is better able to determine students’ abilities to repay loans and therefore would lessen the instances of students overborrowing.
[See how to avoid turning into a scary student loan statistic.]
— Risk sharing for colleges on student debt: This is an idea that’s both Republicans and Democrats have put forth — that colleges should be held financially accountable if their students are unable to repay their student debt.
Both parties are generally supportive of some form of “skin in the game” but disagree on whether it should apply to all institutions and what the thresholds for financial penalties on colleges would be, should some portion of their student population default on their loans. In the May interview, Clovis said “the principle of colleges sharing risk must apply to all institutions.”
On a somewhat related note, Trump has floated the idea of removing colleges’ tax-exempt status if they don’t use their endowments to hold costs down for students.
Why should student loan borrowers care? For borrowers no longer in college, this would have no effect.
But if colleges end up facing those proposed financial penalties, they could restrict lending to students and academic majors they thought had a better chance of handling repayment pass on additional costs to students.
[Learn how to attend college without student loans.]
— Deregulation: The Obama administration has won some hard-fought battles for the student loan consumer, especially when it comes to for-profit institutions. The gainful employment regulation, which went into effect last year, requires vocational programs at for-profit higher education institutions and nondegree programs at community colleges to meet minimum thresholds with respect to the graduates’ debt-to-income rates.
Meanwhile, the Department of Education earlier this month unveiled the final borrower defense to repayment rules designed to offer more protections and opportunities for relief in fraudulent situations.
While there’s been no official movement to reverse either of these rules, many believe these rules could be in jeopardy. The Student Loan Ranger predicts that the Trump administration will have a likely affinity for for-profits — Trump is being sued over his own for-profit education venture, Trump University — and he’s previously stated he wants to lower college tuition by reducing the “unnecessary costs” of colleges’ compliance with federal regulations.
Additionally, Republicans have long been supportive of deregulation in general, so it could be a theme in the upcoming reauthorization of the Higher Education Act — which may move more quickly through Congress now that one party controls both chambers.
One final deregulation note — the Consumer Financial Protection Bureau, which has done much in recent years around improving federal and private student loan servicing, could see a challenge to its leadership structure. Abolishing the bureau, similar to overhauling the federal student loan system, would be incredibly hard to accomplish, but the agency could be in for a battle on its scope of powers and could see new management.
— Abolishing the Department of Education: Republican presidents going back to Ronald Reagan have long threatened doing away with the Department of Education. Given how many federal dollars the department oversees and how entrenched it is in education policy from kindergarten to higher education and more, this is highly unlikely.
However, it’s worth noting that Trump’s agenda for his first 100 days agenda in office includes a hiring freeze on federal employees except the military, public safety and public health — which would likely affect the Department of Education’s ability to get things done.
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5 Possible Student Loan, Higher Ed Impacts of a Trump Presidency originally appeared on usnews.com
