TRUMPED! How Student Loans May Get More Complicated
By Brian Page
December 6, 2016
Donald Trump is a singular force that promises to reshape the economy in ways that every student would do well to understand. From tax policy to student loans to consumer protections, the personal financial world under a Trump administration will look nothing like it has under President Obama. Starting now, financial literacy teachers must adjust their lessons to reflect this new reality. In our series TRUMPED! award-winning personal finance school teacher Brian Page offers guidance. This is the second in the series.
STUDENT LOANS HAVE BEEN on most financial literacy experts’ hit list for years. But now it’s time for a deeper dive. Affordability remains a pressing concern, and under the Trump administration income-based repayment plans promise to expand and become more complicated.
Trump’s college affordability plan, as laid out on his website, would convince universities to reduce tuition costs and the cost of loans in exchange for federal tax breaks. He also expects to work with Congress on measures to make attending college, and getting vocational and technical education more accessible and easier to pay for and finish. According to CNBC, he has also promised to expand the income-based repayment plan for students who borrow from the federal government. He has suggested borrowers should now contribute 12.5% of their income if they choose a repayment plan—up from 10% of discretionary income–but be forgiven any remaining debt associated with the program after 15 years rather than 25.
Income-driven repayment plans must be a part of every high school student’s financial education. But teachers should be cautious about recommending any specific plan. Currently there are four. But that is likely to change and it’s far from certain how future loan repayment and forgiveness will take shape.
Students should be armed with interactive tools to estimate their return on investment for college. This means evaluating the cost of college and loan repayment terms in relation to a student’s earning power based on their field of study. My favorite tool is the PwC sponsored JA Build Your Future App.
A decade ago, college applicants’ biggest worry was not getting into the university of their choice. Five years ago, the biggest worry was being unable to afford their top choice. Today, the greatest fear is being able to repay the loans they will need to finish college. College debt now tops $1.4 trillion, and families are rightfully looking for the new president to make a difference.
It’s a challenge for financial education teachers to have a targeted lesson goal when the topic is a moving target. And this one is really moving. Trump’s Education Secretary nominee Betsy DeVos is a billionaire activist with zero experience with student loans. Yet she would oversee the federal government’s $127 billion annual student loan program.
One thing is clear: students who borrow to attend college but don’t finish have the highest delinquency rates, a heart-stopping 43.5%. So whichever way the political winds blow teachers can at least share that college is an investment that usually pays well—but only for those who finish.