Yahoo Finance What a Trump Presidency Would Mean for Student Loans
The resumption of student loan repayments — which was on a three-year hiatus — finally began again last October, following the Supreme Court striking down President Biden’s student loan forgiveness program in a 6-3 June 30, 2023 decision.
Check Out: How Rich Is Former President Donald Trump?
Read Next:
The Biden administration has since rolled a slew of programs, including the SAVE Plan, which provides the lowest monthly payments of any income-driven-repayment plan available to nearly all student borrowers and would replace the Revised Pay-As-You-Earn (REPAYE) plan. As of May 2024, the total loan forgiveness approved by the administration amounted to $167 billion for 4.75 million Americans, according to the Department of Education.
Yet, a Donald Trump presidency might put an end to these new initiatives. The former president has been extremely vocal about his opposition to Biden’s student loan forgiveness, and said during a recent campaign rally that the program “is not even legal.”
Additionally, CNBC has reported that Trump wants to get rid of the Public Service Loan Forgiveness initiative (PSLF), “which benefits public employees such as members of the U.S. Armed Forces, first responders, public defenders, prosecutors and teachers.”
According to Trump’s campaign website, he also intends to close the Department of Education “very early in the administration,” adding that he will be “sending all education and education work and needs back to the States.”
Experts say that rolling back Biden’s measures could have several repercussions not only on borrowers, but on the economy as well.
It Could be “Devastating”
As Peter C. Earle, Senior Economist for the American Institute for Economic Research noted, the rollback would be devastating for many, as some borrowers have changed jobs, taken on new personal and social responsibilities and otherwise altered their lives and financial trajectories given their eligibility for loan forgiveness.
“For that reason, a complete rollback of student debt relief seems improbable,” he stated.
Earle asserted that current participants are likely to retain their benefits but eligibility for future reductions and forbearance may cease.
“While Trump is known for abrupt policy shifts, halting existing student loan mitigation efforts might be too extreme,” he said, adding, however, that it’s not outside the realm of possibility that he could suddenly, irrevocably, end those programs.
It Would Level the Playing Field
Others have a different stance about what the rollback could mean for student loan borrowers. Vijay Marolia, Founder and Chief Investment Officer of Regal Point Capital Solutions, noted that “it would mean that they would be treated the same as other borrowers.”
“To delete a debt for one person, is to delete an asset for another. Also, if you consider the root of the problem, it’s not the debt; it’s the cost. But cost isn’t the only issue either, it’s the quality — or lack thereof — that’s the second most important issue.”
According to Marolia, when services reduce quality, higher prices are no longer justified, and “the only reason it continues is because the government subsidizes the costs.”
In turn, the issue will persist, he said, “unless the government allows for more choice, and lets the free market decide the actual cost of education -which should be less than half of what it is now considering the fact that a tablet and smartphone can teach almost anyone almost anything.”
Impact of Eliminating the PSLF Program
This could greatly impact public sector workers, according to some experts.
For instance, teachers, military members, first responders, and other people who were counting on loan forgiveness after 10 years of service would face much higher long-term debt burdens, said Bill Townsend, CEO of College Rover.
Another potential impact: it could also discourage people from pursuing careers in public service, maybe leading to staffing shortages in critical areas.
“This also opens up an arena of lawsuits as the contracts these students had with the federal government are valid and binding. Presumptive President Donald Trump can exploit his powers through executive orders, but that does not mean they are fully legal.”
Implications of Cutting Education Department’s Budget
According to Townsend, this could also have far-reaching consequences as it might result in reduced financial aid offerings, which would make higher education less accessible for low and middle-income students.
“Alternatively, the same dollars could be funneled into “for profit” schools, some of which are not scrupulous, which casts a shadow of doubt on “for profit” schools that are legitimately educating our workforce,” he said. Additionally, if subsidies are reduced, it could lead to higher interest rates on federal student loans, further increasing the financial burden on students.
Impact on the Economy
To put this in perspective, there are 43.2 million borrowers with federal student loan debt — amounting to $1.60 trillion, according to the Education Data Initiative. And with borrowers who have planned their finances expecting debt reduction or forgiveness, the economy could face significant disruption if these changes were rolled back, said Earle.
“With consumer spending already slowing in the U.S., reducing the discretionary income of millions could worsen this trend,” he said. “However, since only 13% percent of Americans have student loan debt, predicting a major economic crisis from changes to debt forgiveness might be an exaggeration.”
Another potential impact is that it could delay major life milestones for some borrowers, rippling through various economic sectors.
“Milestones like buying homes, starting families, or saving for retirement, which could go on to affect housing markets, birth rates, and long-term financial stability,” said College Rover’s Townsend.
He further argued that the job market could also be affected, notably with changes in the public service fields, “if high debt loads discourage people from pursuing these often lower-paying but essential careers.”
In the long-term, he added, this could ultimately lead to the widening of wealth gaps.
“It’s worth noting that proponents of these changes argue they would reduce government spending and taxpayer burden,” said Townsend. “However, the economic tradeoffs of potentially reducing access to education and increasing debt burdens would need to be carefully considered.”
Learn More: 25 Richest US Politicians
This article originally appeared on GOBankingRates.com: What a Trump Presidency Would Mean for Student Loans
