USA TODAY International Edition
Remaking rules for student loans
Trump, Congress look to remake a business in which 44M people have $ 1.34T in debt
As Courtney Minor began a master’s program in vocal performance, she made sure to heed some well- known advice: Stick to federal government student loans.
In completing the two- year program at Longy School of Music of Bard College in Boston in 2009, Minor racked up $ 60,000 in debt using six different loans, which required her to pay a total of $ 800 a month for 10 years following graduation.
Her decision to avoid private loans turned out to be a smart move. Federal loans come with a variety of benefits — such as the ability to defer payment or adjust monthly bills based on income — rarely available with private loans. And having gone through periods of unemployment and part- time jobs, Minor, now a mother of two, has used the benefits to lower her monthly payments to $ 500.
Her loans — and those of millions of other students — could be in for a big shakeup in the coming months as President Trump and the Republicancontrolled Congress set out to remake the complex business, potentially eliminating benefits and protections that borrowers such as Minor depend on.
Some changes by the Trump administration are already unfolding. The Education Department plans to consolidate the number of federal loan servicing companies from nine to one. Administration officials also have discussed moving the federal loan program from the Education Department to the Treasury Department. Meanwhile, the Trump administration announced plans to roll back two federal regulations aimed at helping borrowers who say they were misled by for- profit colleges.
With other legislative agendas keeping the White House busy, many of the proposed changes likely will not be enacted until next year, if ever. But the industry anticipates the role of the private sector — which now accounts for about 10% of the student loan volume — will increase as Trump asserts his agenda, said Stephen Dash, CEO of Credible . com, a loan- rate shopping site.
About 44 million people in the U. S. hold $ 1.34 trillion in student loan debt, according to the Federal Reserve Bank of New York. That’s more than all credit card or car loan debt held by American consumers, a surge that has alarmed economists and left a generation of graduates entering the working world with a heavy financial burden. A graduate of the class of 2016 has, on average, $ 37,172 in student loan debt, an increase of 6% from 2015, according to data by Mark Kantrowitz, a financial aid expert and publisher of Cappex. com. In 2005- 06, the average was $ 20,790.
Changes under discussion:
REVISING LOAN FORGIVENESS
Proposal: On the campaign trail, Trump proposed revising the fed- eral loan forgiveness program by having borrowers pay higher monthly payments but getting their debts forgiven sooner. Most federal student loans currently offer several income- based repayment options to borrowers who have modest income. Under these options, borrowers can cap their monthly payments at 10%, 15% or 20% of their income for up to 20 or 25 years. Their loans are forgiven after the designated period if they’ve continued to pay monthly. Trump says he’d consider allowing borrowers to contribute 12.5% and have their debts forgiven after 15 years.
Outlook: It’s not likely given the current makeup of Congress, said Jason Delisle, a resident fellow at the American Enterprise Institute who analyzes student loans. While it would be welcome by students, it would be seen as fiscally irresponsible, he said.
REFINANCING FEDERAL LOANS
Proposal: Sen. Dick Durbin, DIll., and Sen. Elizabeth Warren, D- Mass., have proposed allowing students with federal students loans to refinance with other fed- eral loans. Debtors looking to refinance with a lower interest rate can now turn only to the private market since the federal government doesn’t issue refinancing. As a result, federal loan borrowers who refinance lose some of their protection benefits.
Outlook: Republican lawmakers likely will oppose the plan because it could potentially widen the federal government’s role in student loans, Dash said.
EMPLOYER CONTRIBUTION
Proposal: Several bills have been introduced in recent months to offer incentives to employers to help pay for their workers’ student loans. But current proposals would offer tax benefits to both employers and employees to spur more companies to follow suit.
Outlook: The idea has supporters from student advocates and Republicans. A bipartisan group of 31 lawmakers introduced a bill in March to allow employers to deduct their contributions to employees’ student loan payments — similar to 401( k) contributions. Employees would receive a tax- exempt benefit of up to $ 5,250 per year to pay their student loan debt.
ELIMINATING PLUS LOANS
Proposal: Some Republican lawmakers are seeking to eliminate PLUS loans, arguing the Education Department shouldn’t be in the business of issuing loans. PLUS loans — which once stood for “Parent Loan for Undergraduate Students” — are taken out by graduate students or parents of undergrad students to pay for expenses not covered by financial aid.
Outlook: It’d be difficult to entirely eliminate the PLUS loan programs since students and parents heavily rely on them to supplement financial aid, analysts say. About 4 million borrowers owe $ 125 billion in PLUS loans, according to data from the Education Department.
Republicans may have an easier time arguing for the elimination of PLUS loans for graduate students, Delisle said.
The industry anticipates the role of the private sector — which now accounts for about 10% of the student loan volume — will increase as Trump asserts his agenda.