In an op-ed published by The Boston Globe on Monday, Alan Collinge, founder of StudentLoanJustice.Org and the author of “The Student Loan Scam” (Beacon Press), stated that the Trump administration has the power to save the student loan system. However, according to Collinge, the administration’s current plans for education with Trump’s new budget is going to keep it on the same destructive path it was on well before Trump even took office.
The Rising Problem Under the Obama Administration
As cited by Collinge, and in the article “President Obama’s horrible, terrible legacy on student loans,” by the time Obama left office, student loan debt had reached $1 trillion. When he announced his candidacy in 2007, the nation’s student loan debt was sitting at $450 billion. The current total has risen to $1.5 trillion, and 1.1 million people were found to be nine months behind on payments. Although Obama had called for “affordable college,” many feel that the administration has failed to solve the ailments of the current student loan system. Now we have a new administration, and with the recent budget on education, Collinge and others believe that the problem will persist.
What Trump’s Budget Means for Loaners
In July 2015, the Obama administration issued a memorandum that prohibited “agencies from charging up to 16% on the principal and interest accrued on student loans if the borrower entered the student loan rehabilitation program within 60 days of default” according to the article “Trump Administration Says More Fees for Student Loan Borrowers in Default.” This memorandum has since been disregarded by the U.S. Department of Education. Furthermore, the new budget wants to eliminate the Public Service Loan Forgiveness Program and wants to make other changes. Collinge is clearly in disagreement with these proposals for he thinks they will not beat back what he calls the “predatory behaviors” of the U.S. Department of Education but rather make matters worse.
How the Current Lending System Benefits the Government
According to a USA Today article that Collinge cites, the U.S. Government in 2012 projected to make $50 billion off of student loans. He also stated that two years ago, 57 percent of the people in Income-Based Repayment were “expelled on just one of the many grounds the department has to disqualify borrowers.” What really happened was that 57 percent of people in IBR fell out of the program because they failed to file their annual income documentation on time. According to the article “Hundreds of Thousands of Borrowers Fall Out of Income-Based Repayment Plans,” of this 57 percent, numbering around 700,000, “a third of the lapsed direct loan borrowers re-enrolled in IBR plans within six months, another third went into a hardship-related forbearance or deferment, and some 15 percent became delinquent on their debt, according to officials.” Although Collinge’s overall argument could be stronger, it is clear that many are struggling to bear the debt of their higher education, and he is attempting to bring awareness to this fact.
To get a more encompassing understanding of this issue, let’s take a look at another op-ed that is in opposition to Collinge’s standpoint. According to the article entitled “Donald Trump’s Budget is a Clear Win for Students with Loans” published by U.S. News in March, authors Jason Delisle and Alexander Holt attempt to argue that Trump’s proposed budget might actually be better for loaners than what others have been saying. Though the PSLF will indeed be eliminated, many have criticized it for being a “back-door subsidy for expensive graduate degrees.” Some other changes include making “borrowers who earn higher incomes after school pay more on their loans, as will those who borrowed to finance a graduate degree.” The budget will also set payments that are under income-based repayment for undergraduate and graduate borrowers at 12.5 percent of discretionary income, and will eliminate the category of undergraduate loans called Subsidized Stafford loans.
Though the authors do not do a good job of explaining how the 12.5 percent increase from 10 percent would be beneficial to the loaner, the article does go on to state that “borrowers who rack up higher balances due to the loss of Subsidized Stafford loans won’t pay the additional amount if they earn low or moderate incomes after they leave school.” These are just some of the changes that Trump has proposed, and although they still have to be approved by Congress, there may be some silver lining after all.
What Trump Can Do to Fix the Flawed System
In sum, while there are people in disagreement with Collinge, he highlights some of the issues with the current student loan system. He suggests that some of the changes that could be made by the Trump administration include giving bankruptcy protections to federal student loans, implement statutes of limitations, and other consumer protections that are available with private student loans. However, there is a big difference between the federal government and private institutions, and one could assume such proposals would have a steep hill to climb in Washington.