With a new Congress and president, student loan borrowers and prospective students should expect changes to the current federal student loan program.
“A lot of people don’t know that a lot of federal loan program funding is rolled up in the Affordable Care Act,” says Stephen Dash, CEO and founder of Credible, a multilender marketplace focused on student loans.
That doesn’t mean a repeal of the ACA will change the statutes on the books for the federal student loan and higher education grant programs. But the same legislative procedural tool that was used to pass Obamacare — a budget reconciliation act — could be employed to change the current student loan program, policy analysts say.
The higher education aid programs are likely to stay in place until Congress restructures these programs through a reconciliation act or by reauthorizing the Higher Education Act, which is expired and was last reauthorized in 2008.
Some of the budgetary reforms that passed alongside the ACA included the expansion of income-driven repayment plans and the elimination of backing private lenders to make federal student loans — a move that allowed the federal government to take over the student loan business from the private sector.
Borrowers owe nearly $1.3 trillion in student debt, according to the Federal Reserve Bank of New York, and most is government-backed student loans.
Experts say budget reconciliation acts are often used as a filibuster-proof tool to pass laws related to large sums of entitlement, such as those on health care, tax reform or higher education spending.
“We know that income-based repayment plans from the student loan programs are wildly more expensive than what the Obama administration said they would be, so that’s an area that would be ripe for reform,” says Jason Delisle, a resident fellow at the American Enterprise Institute, a conservative think tank.
[Learn three ways a student loan could be discharged.]
According to the U.S. Government Accountability Office, the Department of Education over- or underestimated the cost of income-driven repayment plans by billions of dollars.
Policy analysts from both sides of the aisle expect changes from the 115th Congress, especially with student loan programs; college financial aid officers around the country also anticipate new rules for federal student loan borrowers.
“The closest prediction we can make is that they will use reconciliation sometime in the near future to address student loans in the same way, most likely making student loans less generous,” says Ben Barrett, a program associate at New America, a nonpartisan think tank.
Here are a few speculations from experts about what student loan borrowers and prospective students may see in the near future.
1. Caps and cutbacks on Grad PLUS loans: Analysts say changes to undergraduate borrowing for incoming students are unlikely with most of the attention on reforming Grad PLUS.
Unlike the federal loan program for students pursuing a bachelor’s degree, there isn’t a cap for graduate student loan borrowing with the Grad P LUS program. For an undergraduate, in most circumstances, the maximum amount for subsidized and unsubsidized loans is set to $31,000 by the Department of Education.
“The college lobby would push back pretty hard if they tried to eliminate it completely. But putting limits on it it may check colleges on the impulse of using grad programs as a cash cow,” Barrett says.
[Discover 10 steps to develop a student loan repayment plan.]
James Bergeron, president of the National Council of Higher Education Resources, says prospective students interested in applying to a grad program in 2019 should “follow these federal efforts around the Grad PLUS program.”
The 2019-2020 academic year is probably the earliest, he says, in which incoming grad students could expect changes to Grad PLUS borrowing.
2. Reforms to income-driven repayment plans: Bergeron says both House and Senate Republicans and Democrats agree that the federal financial aid system is too complex for families.
Currently, there are nine different types of federal student loan repayment plans. The income-driven repayment plans come with requirements, such as those based on the date the borrower took out the loan and income eligibility.
President Donald Trump proposed streamlining all income-based repayment programs into one plan during his campaign. His plan: borrowers would pay 12.5 percent of their discretionary income inside a 15-year payment window before being eligible for loan forgiveness.
But experts say the Trump proposal isn’t ideologically consistent with Republican priorities.
“There are Republicans in office who want to make income-driven programs less generous, and Trump, who has proposed to make them more generous by reducing the amount of time borrowers would have to pay before they would be forgiven,” says Delisle from AEI.
[Check out careers that offer student loan forgiveness.]
The earliest federal student loan borrowers should expect changes with payment plans, experts say, is 2018. During the last major overhaul of the federal student loan program , under the Obama administration, both current and new borrowers were affected.
3. Changes to Public Service Loan Forgiveness, or PSLF: Student loan policy experts say there’s a lot of support for capping or examining the fields that qualify for PSLF — especially when it comes to doctors and attorneys, who apply for the program with its current definition of working for a nonprofit.
“I think they would change the loan forgiveness structure,” Delisle says. “They could cap it or do away with it completely. I would be surprised if they left it alone.”
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3 Student Loan Reforms to Expect Under Trump originally appeared on usnews.com
