As the presidential election results rolled in on November 6, 2024, with former President Donald Trump securing the Republican nomination, many Americans—particularly student borrowers—were left pondering the future of student loan policies in the upcoming Trump administration set to take office in January 2025. Trump’s past comments regarding the potential abolition of the U.S. Department of Education and his mixed messages on student loan forgiveness have left many anxious about their financial futures. Under the Biden Administration, various reforms aimed at student loan forgiveness and borrower relief ended up being contentious, characterized by ongoing legal battles and ineffective programs like the Saving On a Valuable Education (SAVE) income-driven repayment plan.
One of the central concerns among borrowers centers around Trump’s recurring promise to dismantle the U.S. Department of Education, a move that would require Congressional approval. Given the likely Republican majority in both Houses, this scenario, while challenging, is not beyond reach. Financial advisors, like Dr. Constance Craig-Mason, suggest that replacing the Dept. of Education could lead to complications, including inconsistent policies across different agencies, reduced borrower protections, and logistical hurdles in overseeing student loan programs. In the immediate term, borrowers may not face drastic changes, as ongoing contracts with loan servicers would likely transition to a newly designated agency, possibly the Department of Treasury, but the long-term implications could be far-reaching.
In terms of student loan forgiveness, experts anticipate limitations under a Trump-led administration. Megan Walter, a Senior Policy Analyst at the National Association of Student Financial Aid Administrators, warns that the ongoing judicial review may dismantle programs like the SAVE plan. Proposed modifications to programs such as Public Service Loan Forgiveness (PSLF) might only impact new applicants, leaving existing borrowers in a somewhat stable position for the time being. Recall that during his previous presidency, Trump focused on reforms aimed at consolidating payment plans and altering the parameters for forgiveness, suggesting that similar themes may surface again.
A key trend anticipated by many experts is a shift towards increased reliance on private lending for educational financing, as outlined in Trump’s previous speeches. This change could potentially erode beneficial borrower protections available through government-funded loans, such as deferment and forbearance, making private loans a riskier option for future students. The shift could mean that federal student loans would have fewer if any, forgiveness pathways, ultimately increasing the burden on borrowers. Historically, various private lenders have provided loans, but this trajectory indicates a greater inclination away from federal support as the primary avenue for education funding.
On a brighter note, there could be some reduction in interest rates for new federal student loans. Professor Robert R. Johnson from Creighton University suggests alignment with general trends in capital markets may result in lower rates for borrowers. He also points to potential grassroots legislative efforts, like Rep. Mike Lawler’s Affordable Loans For Students Act, which would cap interest rates at 1%. While this legislation is positioned as an alternative to forgiveness strategies favored by the previous administration, its feasibility will hinge on Congress’s support, complicating predictions about the financial landscape for student loans.
Facing an uncertain future, student borrowers are advised to prepare proactively. For those benefitting from income-driven repayment plans, budgeting for forthcoming payments—once the moratorium ends—is prudent. New college students should remain cognizant of the shifting political landscape and minimize borrowing as much as feasible, particularly in light of fluctuating student loan policies. Exploring affordable education options, such as community colleges, and ensuring that future education debts align with realistic career earnings will become increasingly crucial as the new administration takes shape, shaping the financial trajectories of many young Americans.
