President Donald Trump (Photo by Drew Angerer/Getty Images)
Does President Donald Trump have a plan to make student loans great again?
Here’s what you need to know.
The latest student loan debt statistics show that 45 million Americans collectively owe $1.6 trillion of student loan debt. Today, student loan debt is the second highest category of consumer debt after mortgages, and the average student loan debt is about $30,000 per borrower.
As first reported by the Wall Street Journal, Trump has been meeting with advisers from the White House and U.S. Department of Education, which is led by Betsy DeVos, to create a plan to address student loans. While the process is early, here are a few potential areas for discussion:
Simplify student loan repayment
During the 2016 presidential campaign, Trump said he would combine the existing student loan repayment plans into a single, simpler repayment plan. Trump proposed an income-based repayment plan that would cap monthly student loan payments at 12.5% of discretionary income and forgive remaining balances after 15 years. While Trump’s proposal raises the monthly payment cap from 10% to 12.5% of income, his proposal would forgive the remaining student loan balance five to 10 years sooner than the current income-driven repayment plans.
Analysis: Borrowers will like simpler repayment and earlier student loan forgiveness.
Discharge student loans in bankruptcy
Unlike other consumer debt such as credit card and mortgage debt, student loans traditionally cannot be discharged in bankruptcy. There are exceptions, however, namely if certain conditions regarding financial hardship are met. There may be sufficient bipartisan support in Congress to allow borrowers to discharge student loans in bankruptcy.
Analysis: Borrowers will like the opportunity to restart their financial life.
Limit Parent PLUS borrowing
Parent PLUS Loans help parents and grandparents fund undergraduate education for their dependent children or grandchildren. Parent PLUS Loans are federal loans with a relatively high interest rate – about 7% – that can be expensive for borrowers in or near retirement. One potential policy proposal would limit the amount of Parent PLUS Loans that parents and grandparents can borrow to mitigate the risk of financial hardship and potential default.
Analysis: Parents can reduce risk of default, and taxpayers save money.
Lower student loan interest rates
Who wants lower interest rates on their student loans?
The administration could lower student loan rates or fees. For the 2019-2020 academic year, the federal government charges 4.53%, plus a 1.06% origination fee, for undergraduate student loans. Congress sets new student loan rates each year based on the 10-year Treasury Note, and the federal government does not underwrite federal student loans. Therefore, every borrower receives the same, fixed interest rate regardless of their underlying credit score or history of financial responsibility. If this proposal doesn’t get implemented, there are other ways to lower your student loan interest rate.
Analysis: Borrowers will like paying less. Government collects less revenue.
Hold Colleges Accountable
When borrowers defaults on their federal student loans, taxpayers ultimately bear the cost. The Trump administration has called for increased institutional accountability for student loans. For example, institutions that accept taxpayer funds could share in the financial responsibility if their students default on their federal student loans.
Analysis: Shared responsibility limit taxpayer “loss.” Colleges likely will oppose.
Other 2020 presidential candidates
Multiple presidential candidates have proposed a student loan debt forgiveness plan. For example, Senator Bernie Sanders (I-VT) wants to forgive all $1.6 trillion of student loan debt, including both federal and private student loans. Senator Elizabeth Warren (D-MA) has proposed student loan forgiveness up to $50,000 for borrowers with less than $100,000 of annual income, and lower amounts for borrowers who earn $100,000 to $250,000 annually.
DeVos has said that the administration’s goal is to balance the needs of both students and taxpayers. Therefore, Trump, who is seeking re-election in 2020, likely will not propose any large-scale student loan forgiveness, which the administration believes could unfairly burden taxpayers.