Get ready for potential changes in the college funding arena at the federal and state level, some good and some bad for borrowers.

While the federal government might reduce loan availability and payback benefits for borrowers, some states and localities are proposing programs that slash the costs of college, or have already done so.

What to Expect From the White House and Congress

Under the new Republican White House and Congress, there is a good possibility that the biggest student loan program, which the federal government took over in 2010 under President Barack Obama, could revert back to private banks in whole or in part.

Sam Clovis, the national co-chairman and policy director of Donald Trump's presidential campaign, told Inside Higher Education, an online publication, in May that then presidential candidate Trump wanted the federal government to leave the student loan business and have private lenders take on that role but no specific proposal has been presented yet.

Trump himself, however, has proposed to modify the government’s income-based loan repayment plan, letting borrowers pay 12.5% of discretionary income over 15 years, after which the remaining balance would be forgiven.

The most recent federal repayment program for government college loans, Revised Pay As You Earn (REPAYE) allows borrowers to pay 10% of their discretionary income for 20 years (25 years for graduate students and 10 years for those working in public service), after which the loan balance is forgiven.

On the surface, Trump’s plan looks as if it could save borrowers money in the long run because the payback period would be shorter, but it could cause problems for those borrowers unable to cough up more than 10%. Moreover, it’s not clear that Trump’s plan would apply to new borrowers and not just current ones since he has repeatedly said he wants to reduce the government’s role in student lending.

If the federal government’s role is reduced or eliminated in favor of private lenders, it’s likely that college loan rates will increase more than they would have otherwise, and repayment and forgiveness programs could potentially be reduced or eliminated.

Private loan rates depend on the creditworthiness of the borrower and potential co-signer, but that could create problems for the parents of students later on.

During his presidential campaign, Trump said he wanted to work with Congress to require colleges to make an effort to cut costs and student debt in exchange for the federal tax breaks and tax dollars they receive.

Rep. Tom Reed, R-N.Y., a vice chairman of Trump’s transition team, has said he plans to introduce a bill that would require colleges and universities with endowments worth $1 billion or more to devote at least 25% of their investment gains to helping middle-class families pay for school, or risk losing their tax-free status. His proposal also requires college to maintain costs below the inflation rate or face cuts in federal aid as well as disclosure of administrator salaries.Trump’s campaign website also noted the need to for students to more easily access, pay for and finish their education at a two- and four-year college or at a vocational training program, but no details were included.

“We don’t know what to expect,” says Barmak Nassirian, director of federal relations and policy analysis at the American Association of State Colleges and Universities, about Trump’s plans for college assistance.

But if the new president and Republican Congress want to spend more on defense, cut taxes and eliminate the Affordable Care Act, which the Budget Office estimated in 2015 would cost $350 billion (its latest report on repealing the ACA focuses on the individuals who would lose insurance coverage, not the monetary cost), then there could be a “radical rejiggering of all mandatory programs, including student aid, student loans that will not spend more on them, but less,” says Nassirian. That would be a far cry from President Obama's proposal for free tuition at two-year community colleges throughout the country, which went nowhere.

The current subsidized student loan program, which provides interest-free loans to students while they’re in school and delays repayment until six months after graduation, is an “obvious target,” says Nassirian. So is the Pell Grant program, which provides up to $5,815 to needy students and doesn’t require repayment, according to Young Invincibles, an advocacy and research organization for millennials.

While the federal government could reduce or eliminate college loan programs and alter repayment programs, individual states and localities have been increasing assistance for college students or proposing to do so.

How State and Local Governments are Taking the Initiative

Tennessee and Oregon have “Promise” programs that provide two years worth of free tuition to any high school graduate in the state who attends a community college, and Minnesota has a pilot project offering free tuition for one- and two-year training programs at community colleges for students whose family incomes are $90,000 or less.

Rhode Island’s governor, Gina Raimondo, recently proposed free tuition at state community colleges and two years free tuition at four-year state colleges, and Gov. Andrew Cuomo of New York has offered an even broader $164 million plan in his latest budget.

Cuomo’s plan proposes free tuition at public two-year community colleges and four-year public state colleges or universities to in-state high school graduates whose family’s income is $125,000 or less.

There are also myriad free tuition programs for community colleges in various cities and counties throughout the country, according to the Campaign for Free College Tuition, which supports Promise programs, and the Say Yes to Education program, which works with communities and partners across the U.S. to provide college or other postsecondary scholarships to public high school graduates.

Mark Kantrowitz, publisher and vice president of strategy at Cappex, a website that connects students with colleges and scholarships, expects to see an increasing number of cities and states offering free public college tuition, beyond the four dozen or so cities and couple of states that do currently.

“This is an idea that has a lot of momentum,” says Kantrowitz. He's particularly supportive of Cuomo’s proposal because it goes beyond the free community college concept that can have unintended consequence of “sending academically qualified lower income students to less robust programs. Cuomo’s proposal is really solid.”

Why Advisors Need to Keep Up

Brian Boswell, vice president of research and development at savingforcollege.com, a website that helps individuals and professional advisors meet the challenge of paying college costs, says more states could step up efforts to offer free tuition if the federal government cuts back on its loan and grant programs.

In either case he recommends that advisors learn about the latest federal, state and local college savings, loan and tuition plans and maintain that vigilance.

“When clients come in with questions about paying for their child’s college education, advisors need to be able to answer those question in an informed way. The best thing for an advisor to do is to keep their ear to the ground on these issues. Things are changing very fast.”

Instant Insights /

Free College Tuition Plans Sprout in States as Feds Could Cut Aid

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