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Trump Administration's Student Loan Policy Has Dire Implications

Created: 23 March, 2017
Updated: 17 October, 2022
3 min read

Student loan default rates are a major problem for many students. In fact, according to a recent analysis from the Consumer Federation of America (CFA), millions of Americans have fallen behind on their student loans.

This data reveals that nearly 42.4 million people in the U.S. owed at least $1.3 trillion in federal student loans by the end of 2016. Since then, the average amount owed per borrower has increased by at least 17 percent.

Under the previous administration, however, students were somewhat protected. In 2015, the Obama administration issued a memo that prevented debt collectors from charging high interest rates on overdue student loans. Those who entered the government’s loan-rehabilitation program within 60 days of defaulting on their payments were essentially guaranteed protection from debt collectors who wished to charge students high interest rates.

The Trump administration was given until mid-March to continue these same guidelines, which were widely supported by liberal members of Congress. In fact, Senator Elizabeth Warren and Representative Suzanne Bonamici penned a letter last week urging Secretary of Education Betsy DeVos to uphold the previous administration’s policies on this matter.

“We urge the [Department of Education] to stand by its previous guidance and give borrowers in default a chance to rehabilitate their loans and successfully repay their debt without being charged massive collection fees,” the letter reads.

Less than one week later, however, DeVos rejected these guidelines, and instead guaranteed that agencies would be able to predatorily collect on defaulted debt.

The good news is that relatively few students will feel the initial impact. As MarketWatch notes, starting in 2010, all new federal student loans were issued by the Department of Education, which doesn’t charge collection fees to borrowers who agree to hastily make payment arrangements for their defaulted loans.

As a result, students who have taken out federal loans in the last few years will likely not have to worry about an increase in fees.

So who does have cause for concern?

According to The Atlantic,  “those who received loans from the FFELP—which discontinued new loans in 2010.” This is significant, writer Aria Bendix notes, because “The Washington Post reports that nearly half of America’s outstanding debt in default comes from this bank-based federal lending program, while Tuesday’s CFA analysis finds that 16 million Americans are liable for bank-based federal student loans.”

This is a significant blowback for those who have chosen to pursue a higher education, however. Not only are U.S. literacy rates already below ideal standards, but it further indicates that the current administration is centered around profit over person.

It also could have significant consequences for women and minorities, who thrive in the workplace when provided opportunities and education.

Aside from dissuading students to pursue higher education overall, the policy changes also have the potential to affect former students who have been working to pay off their student debt, making their credit score undesirable, which has the potential to affect them long term.

In an age where we need more literate college graduates, many are concerned that prices, fees, and penalties will only continue to spike in years to come. It’s unclear if these policies will affect future students, but it is clear that there is much to watch as far as education policy is concerned.

Photo Credit: ShutterstockProfessional / shutterstock.com

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