As a major election year, 2016 brought plenty of changes. The student debt crisis became a hot topic, but are student loan borrowers better off at the end of 2016 — or should they be dreading what 2017 will mean for their debts?
Here’s a look at the good and bad news for student loans that came out of 2016, and what’s coming next in the new year.
The good stuff
There was a lot of discussion about student loans in 2016. Throughout the year, President Obama worked to put final policies of his presidency in place. During the presidential election, each candidate proposed a policy to address student debt.
But what did it all mean? Here’s the good news for student loan borrowers at the end of 2016.
Trump’s student loan plan
Under the president-elect’s outlined plan to tackle the student loan debt crisis, monthly payments would be capped at 12.5 percent of the borrower’s income.
Currently, student loan borrowers are automatically put on a 10-year standard repayment plan regardless of their income. Income-driven repayment (IDR) plans are offered, but borrowers have to enroll and recertify their income annually to maintain them.
Trump’s plan to cap monthly payments across the board could mean more affordable payments for a wider range of borrowers.
Additionally, Trump says he plans to have any remaining balance forgiven after 15 years of repayment. This is well before the 20 to 25 years required to qualify for student loan forgiveness on current IDR plans. If Trump puts this plan into action, it could bring relief to many student loan borrowers. Still, the full details and costs of this plan remain to be seen.
Student loan fraud protections strengthened
President Obama rolled out updated federal rules in October that further protected student loan borrowers from predatory or fraudulent practices from lenders or schools.
Specifically, for-profit and trade schools are now required to provide clearer information on their costs and student loan repayment. And if the school is found to be employing fraudulent or deceptive practices, it’s simpler for students to discharge their student loans. The rules also make it easier to discharge loans for schools that have closed, as ITT Tech did this year.
These new protections help students make decisions based on clear, transparent information. It also puts a stronger level of accountability on for-profit colleges and provides greater recourse for student borrowers who are the victims of deceptive practices of fraud.
States are starting to tackle student loans
In 2016, states also stepped up to tackle the many issues raised by their residents’ growing student debt.
In New Jersey, lawmakers passed legislation that would forgive student loans for borrowers who are deceased or permanently disabled. This law provided important relief for borrowers and their families who become unable to repay student debts due to a catastrophic event.
The state of Maryland also passed a law to help student debtors buy homes. At the end of November, it started the Maryland SmartBuy program to help those with student debt become homeowners.
If a student loan borrower buys a home with a down payment of at least 5 percent, the state will contribute up to 15 percent of the home’s price toward repaying their remaining student loans.
These state-level programs aimed at easing student debt are an encouraging sign. Hopefully, they are the beginnings of a trend — perhaps more states will create similar laws to assist student debtors in 2017.
The bad news
It’s not all roses for student loan borrowers as we head into a new year. 2017 is shaping up to be unpredictable, from a change in the president to economic uncertainty and rising interest rates. Here are some major events of 2016 that could spell bad news in the coming year.
Student loan rates are rising
With a recent rate hike from the Federal Open Market Committee (and three more slated for 2017), interest rates are on the rise. This could directly affect student loan borrowers in the new year.
Borrowers with variable-rate student loans, for example, can expect both their interest rate and their monthly payments to adjust upward in 2017. And those interested in refinancing should move fast, as student loan rates today are probably the lowest they will be for a while.
Additionally, current students can expect a rate hike on new student loans originating in 2017. Rates on Direct Federal Loans, for instance, are expected to increase from 3.76% to 4.65% for the 2017-18 school year, reports CNBC. Overall, both existing and new student debts will get more expensive moving forward.
Problems with federal student loan relief programs
During his time in office, President Obama has strengthened and implemented several policies to help ease student loan burdens. There are income-driven repayment plans like PAYE and REPAYE, and Public Service Loan Forgiveness that helps graduates serving the public manage their student debts.
But as these programs have matured, new problems have become apparent. Recently, a report from the Government Accountability Office revealed that IDR plans are on track to cost taxpayers $74 billion, with $108 billion forgiven in coming years. This was far beyond previous projections of the programs’ costs.
Another report from the CFPB revealed flaws of federal IDR programs and breakdowns in their implementation processes. These processing issues affected many borrowers, increasing their chance of defaulting. In fact, the CFPB reported that one in three borrowers who rehabilitate defaulted loans ended up in default again within just two years.
The current administration has taken some steps to address these issues, including simplifying IDR forms to make it easier to file for these programs. But 2016 revealed that current student loan assistance is insufficient and still failing many borrowers. It also highlights how complicated and difficult it can be to use policy to address the student loan crisis.
Uncertainty on the horizon in 2017
Perhaps the biggest issue going into 2017 is the uncertainty around student loans.
While Trump proposed a plan that is meant to help student loan borrowers, it’s unclear when or how he would implement it. In fact, with Trump already distancing himself from several of his campaign promises, it’s unclear if he will make student loan repayment assistance a high priority when he takes office.
And with many existing student loan policies proving to be costlier than projected, fiscally conservative Republicans might focus on reining in costly student loan programs.
Additionally, 2017 will be the first year in which the federal government will be set to forgive student loans under Public Service Loan Forgiveness. This program originated in 2007 and promised public sector workers loan forgiveness after 10 years of on-time payments on an IDR plan.
The first set of borrowers will finally become eligible to claim this benefit in 2017. Yet there are still a lot of undetermined details on how exactly this program will be administered, and what it means for borrowers who use it.
There were some big wins for student loan borrowers in 2016, but whether 2017 will further benefit or burden those struggling with student debt is unclear. There are a many reasons for hope, but they are followed by a lot of questions about the future of student debts in the U.S.
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