Mike Cagney, CEO, chairman, and cofounder ofSoFi.SoFi
It's been a big year for student loan debt. Fueled by thevoices of burdened borrowers who share more than $1.3 trillion in outstanding student debt, thecommentary surrounding the student debt crisis seemed toreached a fever pitch this election season, and with goodreason.
There are 44.2 million Americans with student debt, and4.7 million of them are in default. Americans, particularlymillennials, are delaying major life events like buyinghouses, starting families, and even saving for retirement.Instead of propelling them forward, the debt connected tohigher learning is holding many people back.
The presidential candidates were attuned to this nationaldialogue. Bernie Sanders proposed making college tuition-anddebt-free through lower student loan interestrates, allowing loan refinancing after graduation,and higher taxes on some financial activity. Hillary Clinton,too, advocated for refinancing alongside a plan to makein-state public colleges and universitiesfree for some students. Now-President-elect Donald Trumpproposed a plan that included the expansion ofincome-driven repayment and federal loan forgiveness.
Now that the election is over and the hard work of governanceby a new administration and Congress is beginning, it's worthconsidering: What will 2017 bring for student loan borrowers?
Expanding income-driven repayment
Expansion of income-based repayment has been the central tenantof President-elect Trump's student debt plan. As outlined, hisplan would expand the existing program by capping repayment at12.5 percent of discretionary income and forgiving anyremaining balance after 15 years. The Obama Administration'sprogram, in comparison, caps monthly payments at 10 percent ofdiscretionary income and forgives outstanding undergraduatedebt after 20 years.
The plan is not without added costs. The Government AccountingOffice (GAO) recently issued a report that found the costto the government of the existing income-driven repayment planjumped to $53 billion from $28 billion for student loans issuedfrom 2009 to 2016. Additionally, one-third of student loan debtexpected to be repaid via income-driven repayments will beforgiven by the federal government through programs such asPublic Service Loan Forgiveness.
The GAO has not yet issued guidance on what the Trumpadministration's proposal would cost, but suffice to say itwould cost more than today's system. It also remains to be seenwhere this policy change ranks in the legislative priorities ofcongressional Republicans, who seem eager to move quickly onother issues first.
Graduate PLUS loan program could be on the chopping block
Over the course of the campaign, President-elect Trump spoke ofhaving the federal government exit from the business of studentloans entirely in favor of full privatization. It's difficult,but not impossible, to foresee such a pullback. That said,there's a good likelihood of at least one aspect of the programbeing cut: Graduate PLUS.
The Graduate PLUS loan program — which provides federal loans to graduate studentsthat are intended to cover whatever gap remains aftertraditional financial aid has been exhausted — hasn't performedto expectations according to the GAO's recent report, and it'spossible that it will be on the chopping block.
The report found the costs of income-drivenrepayment plans were underestimated because, until 2015,the Department of Education assumed no borrowers of uncappedGraduate PLUS loans would switch to income-based repaymentplans.
Given the costs of operating the program, and the benefits offocusing income-based repayment and loan forgiveness programson undergraduate borrowers, it wouldn't be surprising to seethe government exit the program in 2017.
Colleges may have to put more skin in the game
AmherstCollegevia Flickr
An increasingly popular idea on both sides of the aisle is to havecolleges, which are able to operate largely thanks to studentloan funding, share in the risk of those loans. For instance,if a certain percentage of a college's graduates default ontheir loans, that school could see access to federal programsrestricted. The idea here is that if schools have some skin inthe game, their interests will be better aligned with those oftheir students.
There are a variety of ways such a measure could beimplemented. The American Enterprise Institute, an influentialthink tank among conservatives, has sketched a range of differentimplementations, including charging institutions apercentage of the outstanding balance on non-performing loansin a given cohort using a sliding scale.
Adopting policies that encourage schools to consider theirstudents as investments worth making could pay off for futureborrowers, both in terms of debt levels and quality ofeducation.
Increasing the role of the private sector
As noted above, the private sector is likely to play a largerrole in the lives of those with, or set to take on, studentdebt. But private sector involvement isn't just limited tomaking loans. It also involves helping pay them off.
Employers are playing an increasing role in reducing theiremployees' debt burden and using this aid as a way to win andretain employees. In a survey conducted in February, nearly 90percent of job seekers with student debt said they thinkcompanies should offer student loan repayment as part of theirbenefits package. Companies like mine, SoFi, offer this serviceto employers as an administered benefit, just like a 401(k). Infact, we offer direct contributions to our own employees, up to$200 monthly.
These programs are still relatively new – only four percent of employers offer studentloan repayment as a benefit today – but there have been billsin both the House of Representatives and Senate last sessionmake this to made these kinds of contributions tax efficient –again, just like a 401(k). With broad bipartisan support forthose bills last session, there's a good chance Congress couldmove on the issue in the coming session.
None of this will happen in a vacuum. It remains to be seen howquickly Congress and the incoming Trump administration willwant to move on student debt issues versus other policypriorities. Changes in interest rates play a factor here,especially as they relate to private student loans. But itseems very likely we'll see one of these changes, if not more,occur in the course of next year.
Mike Cagney is CEO, chairman, and cofounder of SoFi, an online personal finance companyoffering student loan refinancing, personal loans, mortgages,and other unprecedented products and tools designed to help itsmore than 200,000 members get ahead and find success. Learnmore at SoFi.com.
