Every election has an impact on college students and their parents. What can be expected from a Trump presidency?
Short Term Effects
Until Trump takes office in January, 2017, the only effect from his election will be on college savings.
If you are saving by investing in the stock market, the initial response to Trump’s election was poor, but shortly thereafter stocks rose and the market is continuing upward. You are best protected if you are saving through 529 accounts. Many 529s are age-based portfolios, meaning younger children’s accounts are more heavily invested in stocks. As the child ages, and particularly a few years before college age, the portfolio is more heavily invested in bonds. As the holder of the portfolio, you can adjust those percentages of investment in bonds and stocks twice a year. Most 529s are diverse enough, however, that current events have little effect, including from election results.
Long Term Effects
• The biggest effect of Trump’s election long term will be on federal student loans. Here are some of Trump’s ideas:
1. Trump might eliminate the government’s involvement in giving out student loans, handing the business of lending over to private banks and lending institutions. This will likely raise interest rates.
2. Trump has also considered having colleges share the burden of student loans. Now colleges lose access to the federal student loan program if 30% of their graduates default on their loans within three years. The Trump administration may offer bonuses to colleges that have a better student repayment rate and charge fines to colleges whose students have a worse rate of student loan repayment.
3. Trump might also tie interest rates to a student’s earning potential. Now every borrowing student has an interest of 3.76%. That could change if you are studying to be a doctor, which might mean a lower rate of interest. However, women and teachers or other professions might experience discrimination under this idea.
• There may be an effect on student loan repayment plans under Trump as well.
1. Current federal loans can be repaid based on income, if you are eligible. Eligibility presently has been broadened, and the rate is 10% of your income to be paid up to 20 years and then forgiven. Trump is suggesting raising that to 15% of your income but only over a 15 year period before forgiving the remainder of the loan.
2. Now certain jobs considered to be public service jobs allow for student loan forgiveness. Under Trump there may be no forgiveness for public service employment.
• Trump may try to lower college cost by reducing government paperwork on compliance, thus reducing administrative costs in order that colleges can cut tuition rates. Colleges not cutting tuition rates could lose their tax-exempt status for large endowment
• Trump has also floated the idea of shutting down the Department of Education. It is not clear how those savings would affect college costs.
• If there is no Department of Education, there would be less supervision of for-profit colleges. In order that for-profit colleges have access for their students to receive federal loans they now must prove they prepare students for well-paying jobs. If students attend fraudulent colleges, they are eligible for student debt relief. Close watch on these compliances would be harder.
Of course, the next four years will be the real test. Watch the trends.