Big changes are coming. For the first time, the President Elect of the United States has no government track record, and analysts are scrambling to field predictions about what the next four years have in store. On the campaign trail, ‘ole Donnie Trump was pretty mute on the future of student loans and higher education, but the few remarks that escaped his camp have not made the future look especially bright and shiny for new student loan borrowers. Here are some things you can do right now to fend off student loan changes under a Trump presidency, as well as remarks from the Trump camp that all borrowers should be aware of.
Anticipate privatization of the student loan industry
It’s no secret that Trump is pro-privatization of student loans. His campaign publicly remarked, if vaguely, on Trump’s intention to work toward deregulation of student loans and less government involvement in the student lending industry.
Students who anticipate needing to borrow student loans while Trump is in office should not be surprised to find a radical shift in the way that the federal government originates and backs student lending in the future. Currently, all federal loans originated after 2010 are funded directly from the government, while many loans that originated prior to that time were given out by private lenders then backed by the federal government.
Trump has promised to push higher education lending farther into the realm of private lenders during his presidency. At least borrowers can rest assured that these changes won’t happen overnight. It will take new legislation passed through Congress to implement the types of changes that Trump talks about. Of course, with the House and Senate both controlled by the Republican Party, the changes are entirely possible.
Refinance before interest rates rise
Interest rates have been low recently, due in large part to the economy rebounding and pretty steady confidence in the market. However, markets in the U.S. and across the world took a nosedive the day after election day. Many market forecasters predict that rates will likely increase overall in the near future, or at least aren’t likely to get better than they are now.
Student loan borrowers should seriously consider current refinancing options, to lock in lower rates while they still can. Both private and federal student loans can be refinanced with private lenders, such as Citizens Bank. Most private lenders require that you pass a credit check and income verification.
When you refinance you can choose to refinance with a fixed rate. Fixed rates remain stable even during periods of rising interest rates. However, you should know that fixed rates start about 200 basis points higher than variable rates. So, rates would need to rise substantially to see the benefit from the additional loan margin cost. Also, there are no penalties if you want to prepay the loan before the end of the term.
As of today, it’s unclear just yet what sort of changes a Trump administration has in mind for federal loans and federal interest rates. Those borrowers holding federal loans who planned to refinance with a private lender in the near future might want to hurry, before rates rise.
Trump proposes a single income-based repayment plan
Just recently, but prior to the election, Trump stated that if he won the presidency he would propose a single income-based repayment plan to replace the myriad of plan options that are now available. Under Trump’s idea, borrowers that qualify would pay 12.5% of their disposable income and would benefit from student loan forgiveness after a mere 15 years.
Currently, with the exception of the Public Service Loan Forgiveness Program, borrowers get loan forgiveness after either 20 or 25 years. Trump has not commented on whether his new income-based repayment plan would incorporate tax debt relief or not. Under the 20 and 25 year plans available right now, any loan balance that is forgiven comes with a tax bill on the forgiven debt, and no legislation to address it has been passed. Considering the tax-reduction remarks he’s made during the last year, is it possible that a Trump repayment plan would also address the tax consequences?
Public Service Loan Forgiveness might cease to exist
On the heels of a revised and streamlined income-based repayment plan is Trump’s casual remarks that the Public Service Loan Forgiveness Program (PSLF) might be eliminated in favor of consolidating all loan forgiveness programs into a single 15-year program. If made retroactive, this would be devastating to those currently in the program and those about to graduate and enter government and nonprofit sector jobs relying on the promise of debt forgiveness in ten years.
The first borrowers to take advantage of PSLF’s loan forgiveness will be eligible to do so in October of 2017, a mere ten months into a Trump administration. What does the possibility of PSLF elimination mean for those about to embark on their college educations? Perhaps don’t count on that program still being alive and well fourteen years from now, and plan careers accordingly.