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The 4 things you need to know about Trump’s plan for student loans, or lack thereof

Senate Democrats on Monday called for an additional hearing for President Donald Trump’s pick for secretary of education, Betsy DeVos, before her confirmation vote. DeVos and Trump have left many in higher education — both students and faculty alike — concerned about the lack of information in regard to specific changes they will make in education policy to advance their conservative agenda. One of the most controversial issues surrounding Trump and higher education is his student loan policy.

Here are the four most important things to know about what Trump’s presidency means for your student loans:

1. Issuers

Prior to reforms in 2010, private banks were the issuer of many new student loans. This policy was reformed in 2010, and the federal government became the sole issuer of student loans.

Privatization of loans has been a principle Trump thinks could prevent students from overborrowing in the first place. The argument here is that private banks would compete against one another to offer students loans at competitive, market-driven rates. This would revert back to the system that was in place prior to 2010, which former President Barack Obama abandoned in favor of direct federal loans.

Reverting to a privatized loan system does allow for competitive rates, but can prove to be restrictive for lower-income students. The purpose of the 2010 reforms was to lessen the financial burden on students and reduce the bottom line for private banks. It seems that Trump’s potential decision to re-privatize the student loan market may return the focus of the student loan marketplace from the students to the banks cutting the checks.

2. Who qualifies

As it stands now, the standard federal student loan repayment period is 10 years. For those who cannot afford monthly payments, the government introduced two income-driven repayment plans to make loans more affordable.

The first of these repayment plans, Pay as You Earn (PAYE), requires payments totaling 10 percent of your monthly income toward the borrower’s undergraduate loans for 20 years, with the balance forgiven after that. For graduate loans, Revised Pay as You Earn (REPAYE), the repayment period lengthens to 25 years until the remainder of the loan can be forgiven.

But these repayment plans are likely to change under Trump’s administration. While the specific details of his student debt plan are still somewhat ambiguous, Trump has voiced support for the consolidation of all current repayment plans into a single, income-driven repayment plan.

Under Trump’s proposed repayment plan, the monthly repayment rate would increase from 10 to 12.5 percent of the borrower’s monthly income, according to Student Debt Relief, a private student loan service. The loan forgiveness period would shorten to 15 years, which is five to 10 years shorter than the PAYE and REPAYE plans, respectively. Trump has also vowed to increase loan forgiveness amounts.

“There seems to be, based on some of the public comments (Trump) has made, a focus on reducing the period over which someone is responsible for loans so that people that can’t afford to don’t have to continue repaying loans for an extended period, although the burden may be higher during the repayment period,” said Michah Rothbart, an assistant professor of public administration and international affairs in Syracuse University’s Maxwell School of Citizenship and Public Affairs.

3. Interest rates

Currently, the average interest rate on outstanding principal for student loans is about 6.5 to 7.25 percent, which is quite high compared to a mortgage, for instance, which is about 3 percent.

“Student loans are atypical in the lending market because there’s no collateral,” Rothbart said. “The collateral on your student loan is the human capital you’ve accumulated through your education. The only way to deal with potential non-payment issues is to charge a high interest rate.”

Since student loans are backed by the federal government, interest rates on loans have historically been somewhat regulated. Under a Trump administration with heavy  rhetoric about banking regulations, it seems as though Trump would try to loosen regulations on how banks determine interest rates for loans.

4. Profits

As the federal government has become the primary and sole issuer of student loans, the government has earned quite a bit of profit from student loan repayment. Trump has said that he is going to put an end to this, albeit without a detailed plan on how to do so.

“They’re going to allow private issuers to issue student loans again, backed by the federal government, and those profits will be borne on private sector banks, rather than the federal government,” Rothbart said.

It is unclear whether Trump plans to rid the student loan industry of profits all together, or just shift those profits from the federal government to his cronies in big banks on Wall Street.

Alex Straus is a sophomore public relations major and finance minor. His column appears weekly. He can be reached at astraus@syr.edu.

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