Tuesday, December 27, 2016

Here's What Might Happen to Your Student Loans in Trump's America

 What might President Elect Trump’s student loan platform do for student loan borrowers thinking about bankruptcy?

Student loan debt causes serious financial crises for many individuals and households. While for the most part, public student loan debt is not dischargeable in bankruptcy; it is often a prime reason that people do end up filing for bankruptcy.

Student loan debt was a hotly debated issue during this presidential campaign. Individuals who supported democratic candidates, while disappointed that their candidates did not win, are finding a glimmer of hope in president-elect Donald Trump’s plan for addressing the student debt crisis.

According to an article in Vice, student loan debtors are hopeful that Mr. Trump’s fairly specific plan for alleviating student loan debt will take some pressure off of their financial situation.

While plans can change, this is what we know Mr. Trump has proposed during his campaign:

  • Consolidation of Income-Based Repayment – reducing confusion surrounding payment options and reducing payments to 12.5% of discretionary income, down from 15%, and remaining balance forgiveness after 15 years.
  • Revamping the Federal Student Loan Program – reinstating private student lending as the primary way for student to obtain educational loans.
  • Risk Sharing Arrangements for Educational Institutions – making the institutions accountable to students who are unable to repay their student debts and/or requiring colleges to repay a portion of any amounts that the student is unable to pay.
  • Deregulation of Educational Institutions – this may affect minimum thresholds for graduates’ debt to income ratios.

There have also been some musings amongst the Republicans about abolishing the Consumer Financial Protection Bureau, which might negatively impact federal and private student loan servicing.

What Student Loan Borrowers Need to Know

Effects may be minimal for existing student loan borrowers. The most direct impact for existing student loan borrowers could be from Mr. Trump’s proposed income-based repayment plan modification. The result would be lower monthly payment requirements and loan forgiveness after 15 years, as opposed to the 25-year forgiveness that is currently offered. Mr. Trump has been silent on changing the treatment of student loan debt in personal bankruptcy.

Future students seeking loans for higher education expenses could see a substantial impact, including additional hurdles to obtaining student loans. The plan to privatize most student loans will impact the ability of future student borrowers with little to no credit to obtain loans for education expenses. Additionally, private student loan borrowers will likely be faced with higher interest rates than they would have paid in government loans and may see more restrictive repayment terms.

If Mr. Trump does in fact make the changes he proposes with regard to privatizing student loans, this may indeed provide a glimmer of hope to students who become unable to handle their private student loan debt. This is because private student loan debt does have the potential for being discharged in Chapter 7 bankruptcy.

Crushed by Student Loan Debt?

If you are struggling to meet your financial obligations because of excessive student loan debt, we can help. Speak with a Miami Valley Bankruptcy attorney to learn about your options and determine the best course of action. Contact us today for a free consultation.

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