How President Trump Could Affect Your Student Loans

November 10th 2016

Tricia Tongco

The average student loan debt stands at $33,000, and total student loan debt is about $1.2 trillion. So student loan debt is both a concern for individual Americans and a national crisis.

How will President Donald Trump approach this widespread financial crisis?

Trump hasn't said anything about what priority he assigns to tackling student debt. But he has detailed a plan.

Trump's most detailed remarks on the topic came during an October campaign rally in Columbus, Ohio:

"Under my student program, we would cap repayment for an affordable portion of borrower's income — 12.5 percent. ... If borrowers work hard and make their full payments for 15 years, we'll let them get on with their lives."

Trump's promise — which The Washington Post deemed "the most liberal student loan repayment plan since the inception of the federal financial aid program" — is a departure from traditional GOP policies, which emphasize fiscal conservatism.

Trump's proposal resembles President Barack Obama's generous income-based repayment program, which allows federal student loan borrowers to limit their monthly payments to 10 percent of their discretionary income and forgives the remainder of their debt after 20 years.

Trump's proposed plan forgives student loan debts five years earlier than Obama's.

If enacted, it would save borrowers more money than Obama's. Take the following scenario offered by CNBC:

"A borrower with $70,000 of federal student loan debt, an average interest rate of 5.5 percent, and an income of $50,000 (growing 3 percent annually) would pay about $89,600 over the course of 20 years under a Pay As You Earn plan, introduced by the Obama administration in 2012.

"Under Trump's repayment plan, the same borrower would pay about $76,800 over the 15-year period before the balance is forgiven."

"Trump's proposal is obviously very beneficial to the borrower in this example case, who saves nearly $13,000 with this proposed plan," Andy Josuweit, CEO of Student Loan Hero, a website offering free debt management tools, told CNBC. "However, these savings do come at a cost to the government and taxpayers, which must be weighed with enacting such a policy."

Trump's proposal had outspoken critics on the right.

Jason Delisle, a resident fellow at the American Enterprise Institute, a conservative think tank, told the Post: "They are way off on their numbers. If you were going to give loan forgiveness in 15 years, you're going to forgive a lot more debt than you're going to make up for in the form of the higher payments they're proposing, by a lot. I don't even need to run the numbers. It's so obvious."

[h/t MarketWatch]