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    The Donald Trump Effect – How Students Loans Are Set to Change Through Debt Consolidation



    Betsy Devos at Senate Confirmation Hearing

    Betsy Devos – Secretary US Department of Education

    Based on President Donald Trump’s budget proposals released in May 2017 one thing is evident that it is going to strike the public servants and student.  Three things that emerge from the proposals are – public servants will be outside the purview of loan forgiveness, it will take much longer for graduate students to repay debts and borrowing for college education will become expensive for some low-income students. The budget proposals mention about cuts in selected initiatives that make college education more affordable and this is going to affect students of low-income group. The proposals stem from the overall outlook of President Trump’s budget strategy of cutting costs, and the education Department’s cost goes down by $9.2 billion in the proposals.

    The proposals are subject to the approval of Congress, and it is not certain as to what would remain and what is going to be rejected, but the spirit of the proposals bears enough indication about the way the Government perceives student debts and college education in days to come.  There is no doubt that the proposals sound alarmed bells for students who are likely to be the broad side of Donald Trump’s target in cost cutting.  Let us now try to understand what could be coming by looking at some of the higher education related proposals of Trump’s budget.

    Repayment program changes

    Borrowers of federal student loans now have the flexibility of choosing repayment plans according to income by selecting the most convenient plan from a bouquet of different repayment plans. Among all repayment plans, the most borrower friendly plan entails maximum monthly payments of 10% of income for 20 years at the end of which the Government forgives remaining debt. The proposed modification increases the monthly payment to 12.5% of the income and under graduate students can earn forgiveness after 15 years and graduates after 30 years.

    Subsidized loan program hacked

    Currently, students belonging to the low-income group avail subsidy on borrowings. The Government bears the interest on the loan for such students while they are studying for the first six months of completion of schooling. Also, they do not have to pay interest for the first time they use the facility of deferment to push back payments on the loans they take. Those availing subsidized Stafford loans have the option of covering the interest for the first three years under the income driven repayment program.  Doing away with the subsidized loan program altogether will severely affect the aspirations of low-income students as they will no more be able to contain the debt burden at minimum levels.

    Doing away with Work Study funding

    Besides making sweeping changes in the student loan program, the budget proposals go further beyond funding for education and touches upon programs like federal work study that help students to afford school while in college. However, the proposal does not completely withdraw the facility but substitutes it with the Pell Grant. The Government provides the money to low-income students so that they can attend college round the year instead of supporting them for just two semesters. The maximum Pell grant award amounts to $5920.  Although it may sound encouraging, students may have to shell out more to meet the increasing tuition cost since the awards are fixed and firm. However, those taking summer courses could do with lower debts as the grants cover year round learning.

    Eliminating Public Service Loan Forgiveness program

    The proposal of scrapping the Public Service Loan Forgiveness program is perhaps going to have the most far-reaching effect.  If this proposal becomes law, it will affect advocates, public defenders, social workers, teachers and many others working in Government and nonprofit organizations the most. Their worst fears are going to come right. The impact of change can be understood by looking at the present loan program that allows borrowers of federal student loans working in Government and nonprofit organizations to have their loans forgiven after paying for ten years. The program aims at encouraging students to enter jobs in fields that are beneficial for the society, but since they do not get salaries that can support the loan payment, the assistance comes in the form of loan forgiveness. As on date, 500,000 borrowers are beneficiaries of the program because the new proposal would affect borrowers whose get loans approved from 1st July 2018 onwards.

    The end for Federal Student Loan?

    Although there is no proposal yet about the Government moving out of the student loan business, those who follow Trump and his team closely are expecting more reforms in this area.  President Trump firmly believes that the Government has no business to dabble in the business of student loans and leave loans to the marketplace to be driven by the market.  A privatized loan market is what the President perceives and if he has his way, getting loans are going to get harder for low-income students who will have a hard time to make it to colleges. This move would make higher education inaccessible for a large section of the population because private student loans have much less flexible repayment plans as compared to what federal loans offer, observe the professionals and specialists at, a debt consolidation company.

    More concerns about privatization of education loans

    In the case of privatization of student loans, there are chances that borrowers will face more inequality in opportunities.  Since there will be no federal guarantee backing the loans, it will lead to competition among borrowers in securing loans.  While some students would be able to borrow more than many others, some other students would also be able to avail lower interest rate if colleges agree to share the risk of the loan with the lenders. From the perspective of loan safety, lenders and colleges would prefer to play it safe by encouraging borrowers who are students in technical fields as it carries lower risk to students of humanities and other subjects.

    The budget proposals about the Education Department have generated strong reactions in several quarters. We have to wait to see which proposals make way through the Congress and become law.


    Peter Cook, a former banker turned financial blogger, is a renowned name in the area of debt consolidation consultation. He has written many blogs for and has an in-depth knowledge of the loan consolidation process.