Some college students may be protesting Donald Trump’s election, and some may be cheering, but whether they’re a fan of the 45th president of the United States, there’s a good chance they’re wondering what he plans to do about student loans. As a candidate, Trump’s stance on college affordability and debt was a bit vague, especially compared to Hillary Clinton’s call for tuition-free higher education. But he has offered a few hints about how he might address the $1.3 trillion in student loan debt Americans currently have hanging over their heads.
The biggest clue to how Trump might reform the student loan system came during a speech he gave in Columbus, Ohio, on October 13. At that event, he said something must be done to keep staggering amounts of student loan debt from derailing people’s lives.
“Students should not be asked to pay more on their loans than they can afford and the debt should not be an albatross around their necks for the rest of their lives,” he said. “And that’s what it is.”
Trump’s solution to the “albatross” of college debt? A rejiggered income-based repayment plan, where borrowers would pay slightly more per month but enjoy a shorter time to loan forgiveness.
“Under Trump’s proposed plan, the government would cap payments at 12.5% of the borrower’s income,” Andy Josuweit, CEO of Student Loan Hero, told The Cheat Sheet. “If the borrower keeps up with payments for 15 years, the government would forgive the remaining loan balance.” Currently, people on the income-based repayment plan pay no more 10% of their income every month. Any remaining balance is forgiven after 20 years of on-time payments.
Not only would forgiveness come faster under Trump’s proposal, but both federal and private student loans would be eligible for income-based repayment, Josuweit explained. Sound like a pretty good deal for borrowers? It is, and that’s precisely the problem, critics say. Slightly higher payments up front won’t be enough to make up for the huge amounts of debt that would be erased if Trump’s proposal becomes reality.
“They are way off on their numbers,” Jason Delisle, a resident fellow at American Enterprise Institute, told The Washington Post. “If you were going to give loan forgiveness in 15 years, you’re going to forgive a lot more debt than you’re going to make up for in the form of the higher payments they’re proposing, by a lot. I don’t even need to run the numbers. It’s so obvious.”
A privatized student loan market?
Changes to income-based repayment aren’t the only reform to student loans Trump has in mind. He also wants to get the federal government out of student loan business entirely, Sam Clovis, the national co-chair and policy director of Trump’s campaign, told Inside Higher Ed in May 2016. “We think it should be marketplace and market driven,” he said in an interview. Local banks would make decisions about lending to students for college. That might make it more difficult for some to borrow to attend college, especially low-income students.
“Cutting out federal funding of student loans would make it harder for these students to get approved for loans, thus decreasing the accessibility of higher education to them,” Josuweit said. “And, today’s private student loans have much less flexible repayment plans than federal loans offer. Many borrowers currently have trouble paying their private student loans and future borrowers would be significantly impacted if they no longer have federal loans as an option.”
Private lenders were allowed to originate government-backed student loans until 2010, when the Obama administration cut them out of the business. Now, the government lends money directly to students, and it makes money in the process – a projected $37 billion over the next decade, according to Bloomberg. During the campaign, Trump said student loans were “probably one of the only things the government shouldn’t make money off.”
A fully privatized student loan marketplace, one where loans were not guaranteed by the federal government, might mean some students would be allowed to borrow more than others or be charged a lower interest rate, especially if colleges were required to share some of the student loan risk, as Clovis suggested. Banks and colleges might offer more favorable terms to a student who plans to major in engineering than one who wants to study art history, since the engineering major seems like a lower risk.
But what about other student loan reforms?
Other student loan reforms
What about the various other government programs that help to ease graduates’ debt burdens, such as public service loan forgiveness, disability discharge, or closed school discharge programs? If Trump and Congressional Republicans go on a spree of spending cuts, they might be in jeopardy, some worry.
“I haven’t heard anything from the Trump campaign that is specifically, ‘Let’s do away with forgiveness,’” student loan consultant Heather Jarvis told the National Law Journal. “But there are plenty of Republicans who have such thoughts. So who knows.”
A recent rule making it easier for students who were defrauded by for-profit schools to get refunds might be the first to be reversed, Reuters reported. But the popularity of programs helping people who’ve been scammed by sketchy colleges or who’ve dedicated their lives to public service could keep them safe.
“Those programs have a lot of value for student loan borrowers and the general public alike,” Josuweit said. “It is possible that changes to these programs will be made, but there would be strong public backlash if the programs were completely cancelled.”