The Trump Administration has proposed quite a few changes to the current student loan industry. One idea that was being considered was consolidating federal loan lenders into one company to make it easier to deal with the $44.2 billion in student loan debt. However, this has since changed. While taking a look at what is currently being proposed for consolidating lenders, we will also summarize what Trump wants to do to Income-Based Repayment (IBR).
Giving All of The Burden to One Lender
Currently, there are nine federal loan lenders. The Department of Education was trying to gain support to let one company handle all of the federal student loans. However, that has since been reconsidered. According to the article “Trump administration changes course on plan to hire student loan companies,” they are now planning to “create a servicing system where the backend and the front end of the student loan servicing system will likely be handled by different companies with expertise in each field.” Furthermore, The Department announced that more than one company may handle the consumer facing side of this new system. This sudden change is due to the growing opposition to a single company system where it would make them “too big to fail.”
Proposed Adjustments to Income-Based Repayment
In his 2018 budget proposal, Trump put in a measure to change the current IBR. He plans to take the 10 percent of a person’s discretionary income monthly payment to 12.5 percent. He will also increase the loan forgiveness mark for graduates to 30 years from 20, shorten the term for undergraduates to 15 years, and also dumps the additional repayment cap set to a borrower’s 10-year repayment schedule. Trump also plans to eliminate Subsidized Stafford loans and the Public Service Loan Forgiveness. Unsubsidized Stafford loans will still be available.
Many are curious how these changes will affect the current student loan debt situation. In a report by The Brookings Institution, a non-profit public policy organization, they broke down how borrowers would benefit from these proposed changes. To summarize the results of their number crunching, the new plan basically shifts benefits from graduate students to undergraduates. It eliminates many of the subsidies graduate students currently have as well as solve the problem egregious incentive for graduate students to borrow more than less.
As for undergraduates, by removing Subsidized Safford loans, Trumps proposal solves two problems: the first being how students from high-income earning families were eligible for these loans if they attended expensive colleges, and the second being that eligibility is based on the parent’s or student’s income at enrollment instead of when they start repaying. Trump’s plan solves these problems by making borrowers eligible for only one loan that varies in repayment cost based on the student’s income after he leaves school. Furthermore, undergraduates will end up having a higher monthly payment under the new IBR but will end up having more money forgiven.
The report concludes that the new proposal is an improvement on the current IBR, but it falls short in a few different ways. Firstly, it adds a new set of rules for undergraduates and graduates, adding more complexity for borrowers to navigate. Also, the report states that the new changes make the same mistake as the Obama era changes where borrowers with higher debts and moderate incomes will reap the largest benefit.