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.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.30%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.69% – 7.21%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|