Trump is set to take office in January, and you may be wondering what that means for your student loans. Throughout the debate, there was little talk about student loans and how they will be handled.
There is over $1.3 trillion dollars in student loan debt that needs to be addressed. Trump has talked about how the student loan debt is a problem, especially when students graduate and never transition into a position where they can pay down their debt. Several plans have been brought up by Donald Trump, but none of them are in the process of being passed yet. At this point, they are still just plans.
It is important to understand what the plans say and how they could benefit you both short-term and long-term. Below, we will explore student loans and Donald Trump’s plan to tackle them.
Cap Off the Maximum Repayment Amount
On October 13th, 2016, Trump talked briefly about student loan debt and proposed a solution to it. He said that he intended to place an income cap on repayment which would be an affordable portion of the student’s income. In other words, this is a new income-driven repayment plan. He said he would cap it off at 12.5% of the borrower’s discretionary income.
Unfortunately, many repayment plans that are in place now require the student to make a monthly payment that may be just outside of what they can afford. This means that students are either borrowing money from elsewhere to pay down their debt, sacrificing food or shelter to pay the bill, or simply not paying it at all. There are some programs offered by federal loan servicers such as forbearance, deferment, and income-based repayment plans, which can help students better afford their payments.
One thing to keep in mind is that Trump’s plan to cap the maximum repayment amount at 12.5% may seem too high for some people. Compared to other plans, this idea will cost borrowers more, but it will expedite loan repayment. In fact, in the REPAYE plan, the maximum repayment is capped at 10%, but this program is only good for federal loans and requires you to extend the repayment length of your loan, where Trump’s plan does not. If the new Trump plan can be applied to private student loans, it could be a winner.
New Student Loan Forgiveness Timelines
In the same speech where Trump talked about capping the maximum repayment amount, he also talked about new student loan forgiveness terms. Trump wants to offer student loan forgiveness after 15 years of on time, monthly payments.
His intention is to allow students to move on with their lives after they have made a fair amount of payments. This may seem like some relief, especially since the current student loan forgiveness program requires students on income-driven repayment plans to make payments for 20 or 25 years.
If Trump were to put this plan into place, it would help a lot of students and forgive quite a bit of debt. Of course, this also means that it may cost Americans more money in the long run, but the numbers have not been worked out yet.
While we may not have any projections yet as to how this plan would play out and if it would cost or save Americans money, it is thought to actually help save money because there will be less student loan defaults and students would be more apt to pay as they can achieve forgiveness.
Reduce the Cost of College
Wait, what? That sounds like a great plan, right? If college costs were not as high as they are now, maybe students would be able to better afford school and not have to borrow as much money. While it sounds like a good idea, it may not be as easy as thought and it may never come to fruition either.
Either way, Trump wants to work with Congress to help lower the costs of college. His idea is to require colleges and universities to make a good faith effort to reduce the costs and debt that students incur. In exchange for it, the schools would receive tax dollars and federal tax breaks, which would greatly help them.
As of now, colleges do not have any type of incentives if they lower the cost of tuition, so why would they consider doing it? Trump will provide them with incentives, which would urge them to lower their costs to students.
Non-Traditional Schools Receive Aid
Currently, the only time students can receive federal student aid is when they attend a college or university that is accredited by the Department of Education. This means that if you want to attend a nontraditional or vocational school, you cannot receive federal student loans or aid.
Trump has said that he wants to change this and allow students to attend whatever school they want and receive the degree they want. His idea behind this plan is to allow students to pursue the skill or trade they want without being hindered due to no financial aid.
This plan does make sense. What student wants to attend a school they don’t want to and receive a degree they won’t use just to get the financial aid they need? None. Therefore, this plan would help those students who simply want to go to a school where they can train and then enter the workforce.
Final Thoughts on Donald Trump and Student Loans
Donald Trump’s student loan plans are still in the planning stage and they have not taken effect and we do not know if they even will take effect. Some of the plans do sound like they would work and benefit students, but it may not help students who are currently making their student loan payments.
If you are planning to attend college or are currently in college, you should keep an eye on these plans, as they may impact the cost of college and how your student loans are handled as well.