Get ready for potential changes in the college funding arena at the federal and state level, some good and some bad for borrowers.
While the federal government might reduce loan availability and payback benefits for borrowers, some states and localities are proposing programs that slash the costs of college, or have already done so.
What to Expect From the White House and Congress
Under the new Republican White House and Congress, there is a good possibility that the biggest student loan program, which the federal government took over in 2010 under President Barack Obama, could revert back to private banks in whole or in part.
Sam Clovis, the national co-chairman and policy director of Donald Trump's presidential campaign, told Inside Higher Education, an online publication, in May that then presidential candidate Trump wanted the federal government to leave the student loan business and have private lenders take on that role but no specific proposal has been presented yet.
Trump himself, however, has proposed to modify the government's income-based loan repayment plan, letting borrowers pay 12.5% of discretionary income over 15 years, after which the remaining balance would be forgiven.
The most recent federal repayment program for government college loans, Revised Pay As You Earn (REPAYE) allows borrowers to pay 10% of their discretionary income for 20 years (25 years for graduate students and 10 years for those working in public service), after which the loan balance is forgiven.
On the surface, Trump's plan looks as if it could save borrowers money in the long run because the payback period would be shorter, but it could cause problems for those borrowers unable to cough up more than 10%. Moreover, it's not clear that Trump's plan would apply to new borrowers and not just current ones since he has repeatedly said he wants to reduce the government's role in student lending.
If the federal government's role is reduced or eliminated in favor of private lenders, it's likely that college loan rates will increase more than they would have otherwise, and repayment and forgiveness programs could potentially be reduced or eliminated.
Private loan rates depend on the creditworthiness of the borrower and potential co-signer, but that could create problems for the parents of students later on.
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During his presidential campaign, Trump said he wanted to work with Congress to require colleges to make an effort to cut costs and student debt in exchange for the federal tax breaks and tax dollars they receive.
Rep. Tom Reed, R-N.Y., a vice chairman of Trump's transition team, has said he plans to introduce a bill that would require colleges and universities with endowments worth $1 billion or more to devote at least 25% of their investment gains to helping middle-class families pay for school, or risk losing their tax-free status. His proposal also requires college to maintain costs below the inflation rate or face cuts in federal aid as well as disclosure of administrator salaries. Trump's campaign website also noted the need to for students to more easily access, pay for and finish their education at a two- and four-year college or at a vocational training program, but no details were included.
"We don't know what to expect," says Barmak Nassirian, director of federal relations and policy analysis at the American Association of State Colleges and Universities, about Trump's plans for college assistance.
But if the new president and Republican Congress want to spend more on defense, cut taxes and eliminate the Affordable Care Act, which the Budget Office estimated in 2015 would cost $350 billion (its latest report on repealing the ACA focuses on the individuals who would lose insurance coverage, not the monetary cost), then there could be a "radical rejiggering of all mandatory programs, including student aid, student loans that will not spend more on them, but less," says Nassirian. That would be a far cry from President Obama's proposal for free tuition at two-year community colleges throughout the country, which went nowhere.
