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Student Loans and the Trump Administration

January 7, 2017 by Shannon Doyle

Student Loans and the Trump Administration

On January 20, 2017, the new administration will begin its many challenges. Among one of the issues facing our country is that of the mounting student loan debt. What will a Trump administration do for the current problem?  Shares of the largest private student loan lender, Sallie Mae, have increased by 55% since the November 8th election in anticipation of private student loan lstudentloanpayenders re-entering the market. Under Obama, origination of federally backed student loans was transferred entirely to the U.S. government, leaving most of the mainstream private lenders such as J.P. Morgan Chase and U.S. Bancorp out of the running.  If these private lenders resume student loan lending, how will this affect the student loan market? If the shift doesn’t come with free-market protections like bankruptcy rights, statutes of limitations and other protections that exist for every other type of loan it won’t fair well for borrowers as past history shows.  But there may be hope yet. Under Obama’s Income Based Repayment Plan (“IBR”), borrowers can repay student loans at a cap of 10% of their income over 20 years. After 20 years the debt is discharged. Trump’s IBR plan calls for a 12.5% cap over 15 years – so while the cap is slightly higher, the term is greatly reduced ultimately allowing for a much greater debt forgiveness. But perhaps more notable is Trump stated on the campaign trail that private student loan grantors should offer these same IBR terms. Will this campaign soundbite be dead on arrival in the real world? Maybe. Banks will not likely accept the new burden on their loan portfolios and Republican’s aren’t known for such regulation. But Trump may be able to get it done, we’ll see.

If private lenders aren’t restrained by IBR’s or other regulations, with the recent trend of bankruptcy cases loosening the hardship qualifications for dischargeability, it could mean an increase in student loan litigation down the road. Trump didn’t mention bankruptcy reform during his campaign but given his rather liberal view on IBR’s coupled with his own experience with bankruptcy, maybe private student loans will finally be subject to discharge in bankruptcy.

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