It’s been a big year for student loan debt. Fueled by the voices of burdened borrowers who share more than $1.3 trillion in outstanding student debt, the commentary surrounding the student debt crisis seemed to reached a fever pitch this election season, and with good reason.
There are 44.2 million Americans with student debt, and 4.7 million of them are in default. Americans, particularly millennials, are delaying major life events like buying houses, starting families, and even saving for retirement. Instead of propelling them forward, the debt connected to higher learning is holding many people back.
The presidential candidates were attuned to this national dialogue. Bernie Sanders proposed making college tuition-and debt-free through lower student loan interest rates, allowing loan refinancing after graduation, and higher taxes on some financial activity. Hillary Clinton, too, advocated for refinancing alongside a plan to make in-state public colleges and universities free for some students. Now-President-elect Donald Trump proposed a plan that included the expansion of income-driven repayment and federal loan forgiveness.
Now that the election is over and the hard work of governance by a new administration and Congress is beginning, it’s worth considering: What will 2017 bring for student loan borrowers?
Expanding income-driven repayment
Expansion of income-based repayment has been the central tenant of President-elect Trump’s student debt plan. As outlined, his plan would expand the existing program by capping repayment at 12.5 percent of discretionary income and forgiving any remaining balance after 15 years. The Obama Administration’s program, in comparison, caps monthly payments at 10 percent of discretionary income and forgives outstanding undergraduate debt after 20 years.
The plan is not without added costs. The Government Accounting Office (GAO) recently issued a report that found the cost to the government of the existing income-driven repayment plan jumped to $53 billion from $28 billion for student loans issued from 2009 to 2016. Additionally, one-third of student loan debt expected to be repaid via income-driven repayments will be forgiven by the federal government through programs such as Public Service Loan Forgiveness.
The GAO has not yet issued guidance on what the Trump administration’s proposal would cost, but suffice to say it would cost more than today’s system. It also remains to be seen where this policy change ranks in the legislative priorities of congressional Republicans, who seem eager to move quickly on other issues first.
Graduate PLUS loan program could be on the chopping block
Over the course of the campaign, President-elect Trump spoke of having the federal government exit from the business of student loans entirely in favor of full privatization. It’s difficult, but not impossible, to foresee such a pullback. That said, there’s a good likelihood of at least one aspect of the program being cut: Graduate PLUS.
The Graduate PLUS loan program — which provides federal loans to graduate students that are intended to cover whatever gap remains after traditional financial aid has been exhausted — hasn’t performed to expectations according to the GAO’s recent report, and it’s possible that it will be on the chopping block.
The report found the costs of income-driven repayment plans were underestimated because, until 2015, the Department of Education assumed no borrowers of uncapped Graduate PLUS loans would switch to income-based repayment plans.
Given the costs of operating the program, and the benefits of focusing income-based repayment and loan forgiveness programs on undergraduate borrowers, it wouldn’t be surprising to see the government exit the program in 2017.
Colleges may have to put more skin in the game
An increasingly popular idea on both sides of the aisle is to have colleges, which are able to operate largely thanks to student loan funding, share in the risk of those loans. For instance, if a certain percentage of a college’s graduates default on their loans, that school could see access to federal programs restricted. The idea here is that if schools have some skin in the game, their interests will be better aligned with those of their students.
There are a variety of ways such a measure could be implemented. The American Enterprise Institute, an influential think tank among conservatives, has sketched a range of different implementations, including charging institutions a percentage of the outstanding balance on non-performing loans in a given cohort using a sliding scale.
Adopting policies that encourage schools to consider their students as investments worth making could pay off for future borrowers, both in terms of debt levels and quality of education.
Increasing the role of the private sector
As noted above, the private sector is likely to play a larger role in the lives of those with, or set to take on, student debt. But private sector involvement isn’t just limited to making loans. It also involves helping pay them off.
Employers are playing an increasing role in reducing their employees’ debt burden and using this aid as a way to win and retain employees. In a survey conducted in February, nearly 90 percent of job seekers with student debt said they think companies should offer student loan repayment as part of their benefits package. Companies like mine, SoFi, offer this service to employers as an administered benefit, just like a 401(k). In fact, we offer direct contributions to our own employees, up to $200 monthly.
These programs are still relatively new – only four percent of employers offer student loan repayment as a benefit today – but there have been bills in both the House of Representatives and Senate last session make this to made these kinds of contributions tax efficient – again, just like a 401(k). With broad bipartisan support for those bills last session, there’s a good chance Congress could move on the issue in the coming session.
None of this will happen in a vacuum. It remains to be seen how quickly Congress and the incoming Trump administration will want to move on student debt issues versus other policy priorities. Changes in interest rates play a factor here, especially as they relate to private student loans. But it seems very likely we’ll see one of these changes, if not more, occur in the course of next year.
Mike Cagney is CEO, chairman, and cofounder of SoFi, an online personal finance company offering student loan refinancing, personal loans, mortgages, and other unprecedented products and tools designed to help its more than 200,000 members get ahead and find success.
To find out more, visit www.studentdebtcenter.org
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