Student Loan Changes Coming in 2017
With President Trump taking office and a Republican-controlled Congress, it’s no surprise there may be several student loan changes in Washington this year that could potentially impact your student loans.

Last year brought a great deal of attention and debate to the student loan crisis with 44 million borrowers responsible for $1.3 trillion in debt. The election year made government officials take note of the growing student debt load and the complexity surrounding it.

On average, students leave school with $37,172 in student loans which is a 6 percent increase over last year’s average. Of these 44 million borrowers, 10 percent are in default which leads to wage and tax garnishment as well as destroyed credit.

Students go to college to get a good education and to advance themselves in life however, they leave with a debilitating amount of debt. This holds them back from being able to purchase a home, start a business, start a family, get married and it even keeps them from leaving their parents house.

Luckily, people took note this past year and President Trump announced he will be making some bold changes to the preexisting plans.

Here are 7 changes to look out for this year:

1. Student Loan Forgiveness

Currently, the standard repayment period for federal student loans is set at 10 years. This means everyone who graduates with federal student loans is automatically placed in a 10 year repayment program. Under the income-driven repayment plan, payments are capped at 10% of borrowers discretionary monthly income for a 20 year period of time (25 years for graduate student loans). President Trump’s student loan program would change the income cap and then shorten the repayment period. The income cap would go from 10% to 12.5% and the repayment period would drop from 20 to 15 years. After this time, the remaining interest and principle would be forgiven.

What Does This Mean For You?

This means shorter payback periods in lieu of a slightly higher monthly payment. The remaining loan balance would be forgiven either 5 to 10 years sooner than the current income-based repayment programs.

2. Student Loan Repayment

Another proposal of President Trumps is to combine two of the current repayment programs known as Pay As Your Earn (PAYE) and Revised Pay As You Earn (REPAYE) into one new plan to avoid confusion for borrowers. Under the PAYE and REPAYE income-based plans, you pay 10% of your discretionary income for 20 years and then what ever you still owe will be forgiven at that point. The REPAYE program includes graduate loans which are set at a 25 year repayment period.

What Does This Mean For You?

REPAYE and PAYE will be combined into one new repayment plan. It is difficult to assess the impact as few details have been given at this time.

3. Variable Rate Student Loan vs. Fixed Rate Student Loan

When a borrower takes out a student loan they have the option to take out a federal loan or a private loan. The two loan types have a few differences however, the main one is their interest rate. Federal loan borrowers have a “fixed interest rate” which means that regardless of how long it takes to pay off their loans or when the Federal Reserve raises the benchmark interest rate, their interest rate will not fluctuate. If a borrower has a 6.8% interest rate when the loan is taken out, this is what they will pay for the duration of the loan.

Some borrowers run out of access to federal student loans and are forced to take out a private student loan. Private student loans have whats known as a “variable interest rate” which means the interest rate can increase over time up to a certain percentage. For example, if a borrower takes out a 20,000 with a 6.8% interest rate, over time that interest rate can increase to 8%, 10%, and even go up to 18%. Often when this happens, it becomes too costly to make the required payments and borrowers are forced to pay solely the interest on the loan. This is known as an “interest only” payment.

Legislators like Elizabeth Warren have brought up the issue of the government profiting off student loans and the ability to refinance loans at current interest rates. Currently, those with a higher interest rates on their federal loans are only able to refinance with a private loan lender. That means they also forgo their right to federal loan benefits such as the income-based repayment programs and the ability to go into forbearance or deferment.
Giving borrowers the ability to refinance their loans would get them a lower interest rate and possibility save them hundreds or thousands over the entirety of the repayment period.

What Does This Mean for You?

This would mainly help the borrowers with federal loans who are looking for a lower interest rate and to keep the benefits of having a federal vs. a private loan. If a borrower has a private student loan and a variable interest rate, they can refinance their loan with a private lender and convert the interest rate from variable to fixed. While this won’t “forgive” any portion of their loan, there are debt relief options solely for those with private student loans. For more information on this call us today at (800)940-8911.
4. Private Sectors & Banks

President Trump wants to increase the role of the private sector and allow them to issue federal student loans. He believe, as many do, that the federal government generates too much “profit” from issuing student loans and wants the private sector to have a larger role in this.

As it stands now, the federal government is the only one who issues all the federal student loans through the Direct Loan program. Before 2010, both private banks and the federal government issues federally-backed student loans.

What Does This Mean For You?

With banks and other financial institutions becoming more involved, prospective loan borrowers would see lower student loan interest rates, better customer service and an easier student loan application process.

5. Financial Responsibility From Colleges & Universities

Tuition costs have been soaring over the past decade which has forced students to borrower even more to fund the cost of their education. To stop this cycle, Trump has called on colleges and universities to help lower the cost of tuition, or they risk losing their tax exempt status.

“If the federal government is going to subsidize student loans, it has a right to expect that colleges work hard to control costs and invest their resources in their students,” President Trump stated in a speech last October. “If colleges refuse to take this responsibility seriously, they will be held accountable.”

What Does This Mean For You?

This proposal means more financial responsibility between the federal government and colleges and universities. Currently, colleges and universities set tuition costs but the federal government assumes all default risk on the federal loans. If this is implemented, colleges and universities would be forced to lower tuition costs which lowers how much borrows would need to take out.

6. Proposed Legislation

Here is a list of all the proposed bills in Congress to help lessen the student loan debt burden:

Stop Taxing Death and Disability Act: this proposal would stop taxing forgiven student loan amounts once the borrower has died or become disabled

Simplifying The Application For Student Aid Act: this would allow students to be able to use their income tax returns from two years prior to the application date as opposed to one year prior.

Employer-Sponsored Student Loan Repayment Plans: this plan would incentive employers to help their employees repay their student loan debt

What Does This Mean For You?

This can mean a lot of different things for you however, these are only proposals so check back soon for more updates.

7. State Run Changes

Some states have grown tired waiting for the federal government to come up with comprehensive change to help borrowers so they have launched their own programs. The state of Maryland launched their SmartBuy program which assists students with loans become homeowners while simultaneously paying off their debt. This initiative puts 15 percent of the home’s purchase towards paying off the buyer’s student loans.

New York is following in their footsteps and has announced its plans to make public colleges tuition-free for families in New York who make less than $125,000 yearly. Through this program, thousands and even millions, could save significant amounts on college.

More states will likely come out with their own initiatives to help student loan borrowers, rather than wait for federal reform.

What Does This Mean For You?

If you live in Maryland or New York you may be eligible for one of their programs. If you are a resident of any other state, you will have to wait and see what initiatives are proposed.

What To Do Now

It is no secret that millions of American’s are struggling with their loans and need help managing their payments. It is one of the most pressing issues that faces our youth today and it’s a crisis that needs solving. While nothing will happen overnight, it is likely we will see significant changes this year.

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