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How Trump's Ban on Federal Student Loans Affects You


Many students are worried that new President-elect Donald Trump wants to ban Federal Student Loans, while at the same time, many investors are planning on cashing in on an opportunity.

Since the election of Donald Trump as the next President of the U.S., stock values have shot up for companies in the education space. So for example, companies that originate student loans like Sallie May, companies that send you your monthly bills on student loans like Navient as well as for-profit colleges like Devry Education (who was sued earlier in 2016 for allegedly defrauding students), all have seen their stocks sky-rocket because of Donald Trump’s student loan plan.

Trump supports moving the federal loan system to private banks, making the student loan system “marketplace and market driven.”

The fact that he has said he wants the government to get out of the student loan business has stock market investors betting that the banks, loan companies and for-profit colleges will be empowered and enriched once Donald Trump bans Federal Student Loans.

Drastic Change - No More Government Loans For Students

Unsurprisingly though, many are expecting a harsh transition if no more government loans are offered to students because, as of right now, 9 out of every 10 new student loans come from the Federal government.

If private companies are allowed to take over the student loan sector, students can expect far less forgiveness of past credit blemishes. Student loan rates are likely to be much higher on private student loans, causing borrowers to pay much more in interest. It is also likely that more student loan seekers will be denied loans for a college education.

Arguments That Trump’s Student Loan Plan Will Lower Tuition

But not everyone sees gloom and doom. Some experts predict that handing the student loan industry back to private banks and other financial institutions will actually lower the cost of college.


Some point to the fact that from the time the government started increasing its role in student lending in 1993 to 2015, the average combined cost of a full-time undergraduate’s tuition, mandatory fees, plus room & board for those attending 4-year Universities went up 190%, from $8,758 to $25,409 (in inflation-adjusted dollars).

Their claim is that college tuition, the related-costs as well as overall student debt skyrocketed because the Universities knew that they could charge whatever rates they wanted to because students would be able to get Federal government loans to cover the exorbitant costs.

Federal Student Loans have nearly guaranteed that all borrowers were eligible to get loans covering costs up to the “cost of attendance,” even if that meant 200K or more for a 4-year degree.

The argument is that there is no incentive for colleges to lower tuition costs under the Federal Student Loan system, but colleges will be forced to compete with one another to offer the best deals possible to students in a private-institution student lending system in which students are more likely to search for lower tuition.

Donald Trump's Student Loan Forgiveness Stance May Hurt

Trump is also against student loan forgiveness, and it is uncertain if current loan forgiveness programs – including the 10-year amnesty for public sector workers – will stay intact during his administration.

Whether for good or for bad, Donald Trumps presidency will impact your ability to pay back your loans. That's undeniable.

As of right now, it looks like there will be no more Student Loan Forgiveness. The student loaf repayment process and forgiving student loans at the federal level will likely be reversed. Many Millennial student loan payments will likely increase.

During the Federal Student Loan era private banks and financial institutions were completely banned from the federal student loan lending process, thus shielding students from extremely high interest rates. Past regulations that created new ways for borrowers to pay back their student loans and offered more reasonable payment plans for people with lower incomes will likely be terminated as well.

The Federal government had previously battled with for-profit Universities and made it possible for borrowers to get their student loans completely eliminated if they could prove that the institution they went to engaged in deceptive recruiting and marketing tactics. The Department of Education has already eliminated over $50 million in student loan debt from over 2,500 claims. But many of these cases have not been processed yet, over 100,000 students have submitted pending claims and it is unknown if these students will get the help they are seeking.

The policies put in place to eliminate student loan debt and punish the wayward for-profit Universities could be easily overturned by Trump. In turn, the current student loan forgiveness claims could get dismissed, and the process to apply for student loan forgiveness in the future terminated.

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