What Will Trump’s Second Term Mean For Student Loans?

As the Trump administration gears up to take over the White House in January of 2025, many student borrowers are wondering what comes next. Some are especially concerned about Trump’s intentions to abolish the U.S. Department of Education, as well as some of his past remarks about the future of student loan forgiveness.

The Biden Administration attempted a lot of reforms to help student loan borrowers, but the results have been mixed. The administration’s never-ending attempts to forgive student loan debt have created constant upheaval, and signature programs like the Saving On a Valuable Education (SAVE) income-driven repayment plan, are currently being decided by the courts.

What will Trump’s second term mean for future student loans and existing student loan debt and repayment plans? While nobody has a crystal ball, most experts believe future student loan forgiveness will be limited.

Potential End Of The U.S. Department Of Education

President Trump has repeatedly said he will put an end to the U.S. Department of Education, but abolishing a government agency requires an act of Congress. However, it’s still possible this could happen considering Republicans have the majority in both the House of Representatives and the Senate.

Dr. Constance Craig-Mason, MRFC®, NSSA®, who works as a financial advisor at Concierge Financial Advisory, says an end to the Dept. of Education would mean federal oversight of student loan programs could be transferred to other agencies altogether. This could create a whole host of problems, including the risk of “creating a patchwork system with inconsistent policies, fewer borrower protections, and increased administrative challenges.”

However, if the Dept. of Education comes to an end, it’s likely most borrowers won’t experience many changes in the short term. For example, existing contracts with loan servicers like MOHELA would simply transfer to the new federal agency (likely the Department of Treasury).

Long term, however, there may be other changes looming for student loan borrowers.

Changes To Student Loan Forgiveness

There’s a strong possibility the SAVE income-driven repayment plan will be struck down by the courts in the coming months. Senior Policy Analyst Megan Walter of the National Association of Student Financial Aid Administrators (NASFAA) adds that borrowers should expect some changes to the availability of forgiveness plans in the coming years. However, she says expected changes to existing programs like Public Service Loan Forgiveness (PSLF) should only apply to new applicants (and not to borrowers already using them).

Walter points out that Trump proposed ending the PSLF program and proposed significant changes to IDR plans as part of broader student loan reforms during his 2016 administration. While these proposals never came to fruition, it’s likely there will be renewed calls in the same vein.

For example, Trump proposed consolidating multiple income-driven repayment plans into a single plan in his fiscal year 2017 budget proposal. However, monthly payments on the new IDR plan he suggested would be capped at 12.5% of discretionary income instead of the 10% some plans require now (or the 5% discretionary income for undergraduate loans that applies under the SAVE plan). Trump’s suggested proposal also lengthened the loan forgiveness timeline for graduate loan borrowers to 30 years and shortened the term to 15 years for undergraduate loan borrowers.

In a similar vein, Republicans in Congress are proposing the College Cost Reduction Act which would change repayment programs and loan forgiveness programs as well.

Renewed Focus On Private Student Lending

Trump’s previous statements on student loans and his proposed end to the U.S. Department of Education may also signal a shift away from reliance on the government to support higher education funding. Walter says the Trump administration has indicated a desire to move the federal student loan system toward private lending, under which generally there is no time-based forgiveness, or forgiveness in any form, on the table.

Private student loan companies have long offered loan options for both undergraduate and graduate-level education, so this is nothing new. However, this change could lead to additional lost benefits for borrowers since private student loans come without the protections federal student loans offer, including deferment and forbearance.

Lower Interest Rates For Federal Student Loans

Professor Robert R. Johnson, Ph.D. of Heider College of Business at Creighton University says borrowers should anticipate a modest decline in interest rates on new federal student loans in the upcoming administration. This is because student loan interest rates are tied to broader market interest rates, he said. Further, the outlook over the near-term is for lower interest rates throughout the capital markets.

It’s also possible federal student loan interest rates will plummet for good if one Republican Congressman gets his way. A bill from Rep. Mike Lawler (R-NY), called the Affordable Loans For Students Act, aims to automatically reduce interest rates to 1% for both existing and new federal student loans.

It remains to be seen if this bill will get the full support of Congress, but keep in mind that this proposal is being offered as an alternative to typical forgiveness plans offered through the Biden administration.

What Should You Do Now?

If you have federal student loans in limbo and you’re worried about the future, there’s nothing you can do right now other than prepare for the inevitable. With little political appetite for student loan forgiveness in the incoming Trump administration, you’ll need to be ready to make payments on student debt for at least the next four years.

If you’re signed up for the SAVE income-driven plan and your payments are currently paused, for example, you should start budgeting for monthly loan payments so you can pick up with them as soon as you can. If you’re currently repaying loans on any other repayment plan, you should continue making room for these payments into the future.

If you’re heading off to college and you haven’t borrowed money for school yet, you’ll want to keep the political climate in mind as well. For example, Bill Townsend of College Rover says to borrow as little as possible so you can limit your loan payments and liability moving forward. Also, realistically look at career choices and potential salaries to make sure you can afford the education you have chosen, he said.

You can even consider different types of schools altogether, including more affordable options. This includes local and community college options versus more expensive out-of-state public or private schools.