Everyone wants to know now that one party control has returned to Washington, what will be the new Republican student loan policy? A lot of it depends on the views of a relatively unknown Congresswoman, Virginia Foxx of North Carolina. She is the chairwoman of the House Committee on Education and the Workforce.
House Republicans Will Be in the Driver’s Seat
President-Elect Trump campaigned in Columbus, Ohio in October for a student loan forgiveness plan that’s even more generous than the PAYE and REPAYE plans created by the Obama administration. I don’t believe he will follow through with his ‘Trump plan.’ It would be very expensive and is at odds with the way Republicans think about government programs.
Trump wants to create an income based repayment option that asks for 12.5% of your income. It would result in loan forgiveness in 15 years instead of 20-25. I’ve modeled his plan in my student loan calculator. In most any scenario, it shows up as more generous than current available options. I think he made this statement to win votes and not necessarily to make real policy change. If he does by some chance pass what he wanted, then you should seriously consider switching to the new plan.
My personal take is that Trump cares about trade policy, immigration, and healthcare. He’s probably content to outsource education policy to his Secretary of Education and Congressional Republicans. I think the House Republicans will be driving the car and Senate Republicans will tap the brakes if the changes proposed go too far. That means Congresswoman Foxx will be the primary voice on student loans. Anything she says will give critical clues to future changes in Republican student loan policy.
Unlimited Grad Plus Loans Are About to Get Attacked
For the reasons I mentioned, we have to take Congresswoman Foxx’s statements about Grad Plus loans very seriously. She wants to reign in the unlimited lending allowed by Grad Plus loans that let borrowers take out up to the full cost of attendance. She believes that uncapped borrowing has led to drastic increases in the price of higher education. The Congresswoman has a point. After all, tuition at the average veterinary medicine program soared from $10,000 to $27,000 in the past 15 years. That means I would expect hard caps on what students can take out probably by fall of 2018.
We will likely see reduced access to student debt across the board. Some grad programs will have no choice but to slow the growth of their tuition.
Expect Private Lenders to Pick Up Slack in an Expanded Role
Expensive graduate programs such as dental, law, medical, pharmacy, veterinary, and business schools depend on the Grad Plus program to cover their very high tuition bills. The private institutions could have a hard time collecting the full amount of their tuition. I would expect private lenders to make up some of the slack at higher interest rates. After all, if a company like Sofi is going to lend to a NYU dental student with $400,000 in debt, they will demand a high interest rate to cover the risk.
Republican Student Loan Policy Will Target PSLF
House Republicans tried to repeal PSLF back in 2015, but the Obama administration rebuffed them. Now there’s no checks on their efforts to abolish PSLF. I fully expect them to grandfather in anyone currently working towards loan forgiveness, but the second they start getting bills for forgiven loans, I expect they’ll move swiftly.
PSLF repeal makes my clients nervous. Usually there are ways to prepare for either possibility. You obviously need to move forward with the assumption that it will happen. That means saving as much as possible in retirement and taxable accounts just in case. However, if you are currently in school, please do not take out more loans than you have to as the current PSLF policy encourages unlimited borrowing.
Republican student loan policy in regards to PSLF will probably not affect you if you’re already out of school. I’d be very uncertain if I was in my first year of a three to four year program though.
What Will Not Change with the New Political Regime?
Folks advocating for deducting student loan interest on your taxes will be very disappointed. I think it’s highly unlikely the House Republicans will allow any bill that would further allow graduate schools to continue raising tuition. Changing the rules to make student loan interest tax deductible would do exactly that.
I’m almost sure that Republican student loan policy will not allow MORE generous benefits than the ones that currently exist. If anything, I’d expect federal programs will become LESS generous. If I was a student, I would orient my borrowing and my finances around this assumption.
How Fast will Republican Student Loan Policy Affect Me?
In terms of priorities, higher education reform falls pretty low on the Republicans’ list. I don’t think Trump and Congress want to create backlash all at once. That means they will move on healthcare first and make that their focus. Clearly, voters will judge them on the issue much more than they will on education.
Once they deal with healthcare, then I might expect to see some work done on Republican student loan policy. For timing purposes, I expect we might be too far along in the process to change anything before the fall of 2017. This means I would expect to see any major changes start happening in fall 2018.
For loans taken out in 2017, they will likely contain the same language in the promissory note that previous years of loans have had. That means PSLF should stay around for fall 2017, most of the repayment plans will probably remain intact until fall 2018, and caps to student loan borrowing will be implemented gradually.
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