5 ways your student loans could change under President Trump


Mr Brexit?
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President-elect Donald Trump has plans to address college affordability and student debt, though many details remain to be worked out. In an Oct. 13 speech in Columbus, Ohio, Trump outlined the basics of his views on student debt, tuition rates, administrative bloat, income-based repayment and loan forgiveness.

Students should not be asked to pay more on their loans than they can afford, Trump said. The debt should not be an albatross around their necks for the rest of their lives.

Trump and the Republican Party didnt emphasize higher education in their campaign platforms, leaving experts puzzled as to what policies a Trump administration might pursue.

We wont know what priorities, if any, the administration has until we see what staff is in and what ideas they put out there, says Matthew Chingos, senior fellow at the Washington think tank Urban Institute.

Any proposed changes to the current federal student loan system would require congressional backing and action.Heres what we may be able to expect:

1. Income-driven repayment changes are likely

Under Trumps proposed student loan program, he would cap repayment at 12.5% of a borrowers income. He did not indicate if this repayment cap would apply to all federal loan borrowers or only for those who apply for income-driven repayment, as is the case now. In the most widely available income-driven repayment plan currently available to student loan borrowers, known as Revised Pay As You Earn, or REPAYE, monthly payments are capped at 10% of a borrowers discretionary income.

Trumps proposalwould also forgive student loan debt after 15 years of full payments five years earlier than the current REPAYE option though it isnt clear whether this applies only to income-driven repayment plans.

Jason Delisle, resident fellow at the American Enterprise Institute, says shortening the forgiveness timeline by five years could result in a net increase in the cost of the program for taxpayers.

2. Private banks not the government might issue federal student loans

Trump wants to restore a system in which private banks issue federal student loans, Trumps policy director Sam Clovis said in a May interview with Inside Higher Ed. The Republican Party platform also called for the federal government to stop originating student loans.

Private banks used to issuefederally backed student loans until 2010, when the federal government revamped the program and began originatingall federal student loans through its Direct Loan program. The Obama administration cited billions of dollars in cost savings as areason for the switch, and used the savings to offermore Pell Grants for low-income students. Today, most new student borrowing comesfromfederal direct loans, with private lenders servicing the government-issued loans.

3. Students prospective future earnings could inform their loan worthiness

Trump also wants to let colleges have a say in lending decisions and make them share the risk of student borrowingwith lenders, according to the Inside Higher Ed article. It would be up to the colleges and banks to decide together which students could borrow student loans, Clovis said. The decision would be based on factors including the students major, choice of college and the potential to find a job after graduating.

For example, students pursuing majors with high post-college employment rates, such as engineering and health care, might be approved to take onmore student debt than thosestudying liberal arts topics. Today, any student regardless of his or herplanned major can borrow the same amount of federal student loans each year.

The idea that colleges should have skin in the game by taking responsibility for student outcomes has bipartisan support. For example, Sen. Jack Reed, D-R.I., introduced a bill in 2015 that would require colleges that accept federal financial aid to share student loan risk with the Department of Education.Chingos says risk-sharing for institutions may also threaten the for-profit college industry, but its unclear whether the Trump administration would be sympathetic to for-profit schools.

4. College costs could be reduced by limiting administrative bloat

Trump said in his October speech in Ohio that he would take steps to push colleges to cut tuition costs. If the federal government is going to subsidize student loans, he said, then colleges must be held accountable to invest in their students. If schools do not invest endowment money to reduce costs, Trump said the government may reconsider whether they deserve to keep those endowments tax-exempt.

We have a lot of power over the college, and theyre not doing the job of cost cutting because they dont have the incentive cost to cut it because youre paying for it, he said in the speech.

Trump also said in his Ohio speech that he plans to reduce the tremendous bloat in college administration. By reducing unnecessary costs of compliance with federal regulations, he said, colleges would be able to pass the savings on to students in the form of lower tuition.

5. You could use federal financial aid to cover nontraditional education programs

On his campaign website, Trump said he planned to ensure that the opportunity to attend a two- or four-year college, or to pursue a trade or a skill set through vocational and technical education, will be easier to access, pay for and finish.

Higher-education programs accreditation should be decoupled from federal financing, the Republican Party platform said. That maymean that students attending those nontraditional programs could be allowed to pay for the courses withfederal financial aid. Currently, only students attending schools that are accredited through the Department of Education can qualify for federal financial aid.

AfterTrumps speech in Ohio, his campaign did not release a more comprehensive higher education plan on its website.

What college students and loan borrowers can do now

Students seeking financial aid should fill out the Free Application for Federal Student Aid each year theyre in school. Submitting the FAFSA is required by those who want to be considered for grants, scholarships, work-study jobs and federal student loans.

Borrowers with existing student loan debt have several options for managing it, including income-driven repayment plans, federal forgiveness programs and student loan refinancing.

This article originally published at NerdWallet here

Read more: http://mashable.com/2016/11/11/5-ways-trump-could-affect-student-loans/

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