(Bloomberg) -- This year is likely to bring big changes to the world of higher education as President-elect Donald Trump takes office.
For the 40 million Americans with federal student debt, a new president is the latest twist in a saga of potential loan forgiveness and paused payments. President Joe Biden’s time in office has seen more than $175 billion in debt relief and the rollout of income-driven plans that reduced bills. Trump’s administration could change all of that just as federal student-loan payments restart in earnest.
This comes as an increasing number of colleges — buckling under declining enrollment and high costs — are closing, and a growing number of families question the value of higher education in the first place. At some of the nation's most selective universities, the price tag is creeping toward $100,000 per year — well above the national median household income.
This will also mark the second academic year since the Supreme Court banned the use of race in admissions. That decision resulted in a decline in Black students enrolled at selective universities, a trend expected to continue.
Here’s what you need to know about the year ahead:
What will happen with student loan payments?
Following a three-year pause due to the pandemic, federal debt payments restarted in October 2023. At the same time, however, the Biden administration created a one-year leniency period that shielded borrowers from the worst repercussions of missed bills. That concluded at the end of September, meaning those who don’t make payments can now be considered delinquent, reported to credit bureaus or placed in default.
There’s a little wiggle room before borrowers start feeling the pain. Delinquencies aren’t reported until bills are 90 days late, so someone who missed their October payment won’t see their credit score affected until January. And loans aren’t considered in default until a borrower hasn’t made a payment in 270 days — the middle of 2025.
Those with the best credit scores will see the biggest hits from missing payments, according to TransUnion. Super-prime borrowers, who have credit scores above 780, will see their scores slip 129 points on average. Only half of student loan borrowers made a payment in September, according to data from credit reporting agency TransUnion.
There could also be changes coming to payment plans. One of Biden’s signature student loan initiatives is the Saving on a Valuable Education (SAVE) plan, which calculated payments based on borrowers’ income, potentially resulting in zero-dollar bills for those with low salaries. Republican-led states have since challenged the legality of the plan, and its fate is currently tied up in court.
Because the legal battle over SAVE is between Republican-led states and the federal government, the incoming Republican administration will heavily influence the program’s fate, according to Betsy Mayotte, president of the Institute of Student Loan Advisors.
“Most people suspect the new administration will not continue to pursue defending the plan, so it could very likely go away,” she said.
Some also worry a Republican presidential administration could dismantle the Public Service Loan Forgiveness program — which allows government employees to eliminate their debt — but advisers say borrowers currently pursuing that plan are likely safe from any changes. Getting rid of PSLF would require Congressional approval, making it more difficult to overturn.
Should I try to refinance my loans?
For the past few years, it didn’t make sense to refinance federal student loans. The payment pause meant interest didn’t accrue, so the rate on the loans didn’t matter. Plus, refinancing through a private lender effectively turns a federal loan into a private one. When Biden’s sweeping forgiveness plans for federal loans were still on the table, borrowers didn’t want to risk forfeiting that potential benefit.
All of that is changing now. The Federal Reserve is cutting interest rates, the payment pause is over and the incoming administration is unlikely to keep forgiveness plans alive. At the same time, many private lenders are competitively pricing their interest rates in an effort to drum up new business, said Andrew Paulson, co-founder of StudentLoanAdvice.com. Borrowers may be able to secure substantial savings by refinancing their students loans now.
The rate on your federal loan depends on when you took it out, but for the 2024-25 school year, rates for undergraduate federal loans were 6.53% and graduate ones were 8.08%. Loan refinancing firms SoFi and Earnest offer rates starting at 4.49% and 3.95%, respectively, for a fixed-rate loan.
How will the Trump administration tackle higher education?
In November, Bloomberg reported that Trump tapped conservative activist Christopher Rufo, who played a role in ousting Harvard President Claudine Gay last year, to present a plan to slash federal funding for universities that refuse to scrap diversity and equity programs. That could potentially restrict billions of dollars of federal funds that colleges secure every year for research and other areas.
“If you don’t stop discriminating and violating the law, you will no longer be qualified for federal funding,” Rufo said. “I think that is the way forward, and that universities would buckle immediately.”
After the Supreme Court ended the use of race in admissions, colleges welcomed fewer Black students. The number of Black 18-year-old freshmen dropped by 14% at highly selective private four-year institutions. The decline was even more dramatic at their public counterparts, where the number of Black students fell by 20%.
Many are also questioning what Trump’s second term could mean for international students. In June, Trump said all foreign students who graduate from a US college should receive green cards, but the campaign later walked back the comments.
Will colleges continue to close?
College closures across the country are set to increase significantly. Under the worst-case scenario, which assumes a one-time 15% drop in perspective students known as the “demographic cliff,” 80 additional colleges would shut, according to a working paper published by the Federal Reserve Bank of Philadelphia. That could potentially affect more than 100,000 students and 20,880 staff members.
Colleges across the nation have been merging with other institutions, slashing tuition and cutting programs in order to avoid closure. Last year, the number of 18-year-olds enrolled in college fell 5%, according to data from the National Student Clearinghouse.
Is college going to get more expensive?
While the cost of attendance is approaching $100,000 at some colleges, there are efforts to lower costs for low-income families. Recently, colleges such as the University of Pennsylvania and the Massachusetts Institute of Technology have expanded their financial aid offerings to cover tuition for families with a household income of $200,000 or less.
This change comes a year after the revamp of the Free Application for Federal Student Aid, or FAFSA, caused serious delays for students applying to college. The debacle led many students either to commit to colleges without fully understanding the full costs or to opt out of school altogether. The issue seems to have been resolved.
For cost-conscious students, public colleges have become increasingly popular. A Bloomberg analysis recently found the return on investment at public flagship universities can far outperform more expensive liberal arts schools when looking at costs and future earnings. Applications to colleges in the South are up 50% since 2019, compared to a less-than 30% rise for those in New England and the Mid-Atlantic, according to data from the Common Application.
To contact the authors of this story:
Claire Ballentine in New York at [email protected]
Francesca Maglione in New York at [email protected]
