In America, we have a new President. Now people are thinking about the promises Donald Trump made including his plan for student loan debt. There are many questions regarding this matter such as what do actual borrowers want to happen about the student loan policy? It seems that what student loan borrowers wanted is pretty close to the promise made by Trump. Trump said that he wants to utilize tax breaks and tax dollars to incentivize college reducing costs. Analyzing the situation, it is said that student loan borrowers like Donald Trump’s idea, but they are not sure if the situation is going to improve. Some people including myself don’t think anything will actually happen.
Privatizing the Student Loan Industry
The stock market has firm belief that Donald Trump will increase privatization. Previously, Trump wanted to shift student loan system to private lenders. According to Forbes, President Trump referred excessive profit being received from student loans as a questionable premise. The main concern is whether privatization of student loan will shift profit to banks or it will benefit borrowers with low rates. Many people find latter scenario quite doubtful, as interest rates from public sources are going to be lesser than those of the private sources. It would be great if borrowers could start off with low rates. The rates for my student loans fluctuated between 3.4 - 6.8%. While I’m able to make payments, I can only imagine the money that I would be saving if the interest on the loans were 1 or 2%.
Trump wants to develop a system that gives control of federal student loans to private banks. Moreover, the Federal Government has been called by the Republican Party platform to stop instigating student loans. Some of the important points of his privatization policy of student loan industry include:
The government should not make money on student loans to lower the interest rate for federal loans.
He suggested getting rid of the Public Service Loan Forgiveness program. I know a lot of people may not like this idea.
Colleges will be pushed to reduce large administration costs. If this happens, a lot of students will be able to save thousands of dollars.
Reduction of federal regulations on college and passing savings on compliance costs to students.
Universities will be required to spend endowment money among students making tuition low and cutting down student debts.
Threatened large university endowments with possible tax exempt, if they don’t make degrees affordable.
Student loan policy might not be on top of the priority list of Trump administration, but this issue could be pushed up with the descending economic complications. The market seems to believe that Trump might reverse the progression of privatization.
Income-Driven Repayment Plan
Trump has suggested an income-based repayment plan for student loan payment at 12.5% of income. His proposal is likely to forgive student loan debt after 15 years of full payments. There is no indication if repayment cap applies to federal loan borrowers or for income-driven repayment. That sounds pretty good, but I wonder would this only apply to new graduates or people that still have student loan debt.
A resident fellow at American Enterprise Institute Jason Delisle says reducing the forgiveness timeline to 5 years can help in increasing the cost of taxpayer’s program.
Congressional Budget Office estimates that the Government is going to lose $ 170 billion of taxpayer money over student loan programs in the next ten years. Trump's plan can regressively increase the total.
People who are earning higher incomes with large student loans might have summed up the debts with their graduate degrees. Trump’s plan is said to be a great advantage to future doctors, businessmen and lawyers. Individuals having low student loan balance will need help the less. They could not get benefit from this policy.
The reform for student loan program is just a starting point. Federal student loans based on income are sensible as they assure the payment is going to be manageable. People with low income or less income are going to get fewer payments.
It is hard to see how these changes are going to help, as existing income-driven repayment plans cap payment for a longer time period with a lower percentage. Ultimately, the only way how Trump can help his economic program successful is to provide more jobs to existing and future student debtors. Only time will tell if any of this happens. In the meantime, continue to pay on your loans.
Image Copyright Michael Vadon.