After what will likely go down as one of the more colorful campaign seasons; America has finally made its choice and the Federal government is on the eve of a substantial regime change. Under President Obama, federal student loan programs saw massive reform. Now that the White House is set to be under new management, it’s only natural to wonder which of these reforms will remain, be adjusted, or discarded altogether. While the President-Elect has mentioned proposed changes here and there, the fact remains that education was not one of the marquee issues of the election and it is therefore difficult to know exactly what changes will be implemented until they start happening.
What the President-Elect has Said
Mr. Trump has specifically said he would like to eliminate the 10 year public service program but, at the same time, would like to give all students forgiveness on their loans in 15 years instead of the current 20 years. He would also increase the current monthly repayment plan which requires 10% of discretionary income to 12.5%. Moreover, there is likelihood that President Trump’s system would return the dispersing and collecting duties to private lenders, effectively making loan servicing companies obsolete.
What Do Trump’s Proposed Changes Mean for Students?
Perhaps the most pernicious of the proposed changes is the 2.5% increase of discretionary income. However, over a period of 15 years instead of 20, even with the increase the out of pocket cost to the student ends up being less. The dissolution of loan servicing companies could have an even bigger effect. These companies have come under increased scrutiny. It has been discovered that they have been intentionally obfuscating information about lower monthly payments from lenders. The current income based repayment plans allow lower income students to remain in a state of repayment with manageable monthly payments, some as low as nothing. The problem is that you must apply for income based repayment, assuming you know about it at all, and the information is buried under offers for deferment or forbearance. Not only will you not be in a state of repayment, you’ll be accruing interest that will increase the amount you owe, probably by thousands of dollars. Not only do these companies make it difficult to find helpful information, in at least one case they actively told their staff not to tell lenders about help unless explicitly asked.
There is a possible downside. Private institutions could begin to take into account a student’s likely earning potential, based on course of study when determining loan eligibility, effectively making some majors and focuses more viable than others and indirectly limiting the choices of students dependent on loans.
Problems Trump’s Plan Doesn’t Address
There are holes in the current system that Trump’s plan does not address. While the price of college has been on a fairly steady increase, loan limits have not. It won’t be long before the gap between the two becomes a serious problem for families to keep up with. On the other end of the spectrum, Trump has yet to mention any provision addressing the massive loopholes in Parent Plus loans that allow higher income families to get away with paying nothing on loans in excess of $100,000.
One of the more radical proposals from the soon to be President is to make universities partially responsible, from a financial perspective, for student loan defaults; a plan echoed by some members of the Senate on both sides of the aisle. The logic being that college is getting more and more expensive while a college degree is getting less and less helpful getting graduates employed. This change would give schools a financial incentive to make sure their graduates are employable.
Only Time Will Tell
It is important to remember that these proposed changes were campaign promises and the President-Elect is under no legal obligation to make good on them. Moreover, beyond “lowering federal spending” there are no proposed plans to help make the new plan financially feasible. But the biggest hurdle would likely be that Trump’s own party, who happen to be in fairly firm control of the House of Representatives and the Senate are not particularly thrilled about the plan, if not outright against it.
As previously stated, it is currently impossible to know what changes the new president will implement. He could completely overhaul the system, or leave it untouched entirely. What we do know is that now more than ever it is important to stay on top of the situation. Visit My College Planning Team.com and stay informed about any changes the new administration might make, or to set up a free consultation with our Financial Team to see how those changes could affect you. Only time will tell how the next 4 to 8 years affect federal student loans. By the time you think you know the rules, they up and change. That’s why it’s so helpful to have an advisor who makes it their business to stay abreast of all the ins and outs to help you make the best decision for your student and their future.