5 Student loan reforms to watch out for in 2017

 

Student loan debt was the center of discussion in the US Presidential campaign. Be it, Hillary Clinton or Donald Trump or other candidates, everyone talked about their plans to evict student loan debt from the country in their campaigns. President Donald Trump also proposed a set of plans to tackle the burning issue of the country in his various speeches. Now that he is the official President of the country – it’s expected that Trump would leave no stone unturned to implement his proposals.

 

Undoubtedly, Trump’s proposals would impact your student loans – in a good or a bad way. So let us know about his proposals and how they may affect you in 2017.

 

  1. Higher income cap and shorter repayment plan: Present scenario

Under an income-based repayment plan, your monthly payment is capped at 10% of your income for federal government student loans. The repayment term continues for 20-25 years. The rest of the amount is forgiven.

Graduate loans – 20 years

Undergraduate loans – 25 years

Close up of Student Loan application Form with pen, calculator and writing hand

Anticipated future scenario

If Trump’s proposal is implemented, your monthly payment cap would be raised to $12.5% of your income. Subsequently, your repayment plan would be reduced to 15 years. The remaining student loan would be forgiven.

The benefit: You’ll get out of student loan debt sooner.

  1. PAYE and REPAYE would be clubbed into one. The Present scenario Under the PAYE repayment plan, you have to pay 10% of your discretionary income for 20 years towards federal undergraduate loans. The remaining balance is forgiven.

Under the REPAYE repayment plan, you need to pay 10% of your discretionary income for 25 years towards federal graduate loans. Like PAYE, the remaining balance is forgiven.

Anticipated future scenario

Both the repayment plans would be clubbed into one repayment plan. Students would be less confused.

 

  1. Higher variable interest rates for student loans

Student loans come with 2 types of interest rate – fixed and variable. Each has its benefits and drawbacks. In December 2016, the Federal Reserve hiked the interest rate by 0.25% and it’s predicted that there will be 3 more rate hikes in 2017. The higher interest rates mean higher interest costs. This is a bad news for students for they have to make higher payments on variable interest rate loans like mortgage and credit card.

The interest rate hike in December was only minimal. There will be more rate hikes in 2017. Consider refinancing your existing variable interest student loan into a fixed interest rate one.

 

  1. Private sector banks will participate in federal loan origination

 

The present scenario

 

Students can apply for federal student loans only through the Direct Loan Program.

 

Anticipated future scenario:

 

President Trumps believes that federal government reaps too much profit from student loans. So, he wants private lenders like banks to participate in the issuance of federal student loan.

Tough to say if students will benefit when banks start issuing federal student loans. But what can be said for sure is that students would benefit from lower student loan interest rates, easy loan application process, and prompt customer service.

 

  1. Colleges need to take more financial responsibilities

One of the primary reasons behind high education cost is exorbitant tuition fees. Students are being forced to borrow more to cover college expenses. Scholarships and financial aid help offset the high cost of education. But the question is, how many students qualify for scholarships and grants? What about the students with average grades?Trump is no mood to entertain the high-handedness of colleges. He said said,”If the federal government is going to subsidize student loans, it has a right to expect that colleges work hard to control costs and invest their resources in their students,”Trump has asked colleges with large endowments to cut down tuition fees. Otherwise, colleges would lose tax-exempt status. He wants colleges to take more financial responsibilities and risks along with the federal government.

 

The present scenario:

Colleges and universities don’t take risks or financial responsibilities like government. All they do is set high tuition fees and reap huge profits every year. They know students would take out educational loans to cover their education cost. It’s another matter that most students default on loans and get into massive debt problems. Both students and the federal government suffer.

 

Anticipated future scenario

College would slash the tuition fees. Students wouldn’t be forced to take out huge student loans. Students would focus more on their career and family planning instead of paying huge student loans.

 

Conclusion

 

 

 

Several legislative bills have been proposed in 2016 to lighten the student loan debt burden. For example, Stop Taxing Death and Disability Act, which will stop imposing tax on the forgiven student loan debt. But this facility will be given to the borrower who has died or become disabled. Another proposal is in the pipeline – Various Employer-Sponsored Student Loan Repayment Plans. This Act would create incentives for employers so that they assist their employees in paying off student loan debt.
This post is contributed by Patricia Sanders a regular contributor at https://wiki.debtcc.com/.