Student Advocates Fear Trump's Preference for a Bank-Dominated Student Loan Market

Editors' pick: Originally published Nov. 15.

Donald Trump may bring back bank and non-bank private lenders to student loan origination if the Department of Education (ED) reduces federal loans available for college. Fewer federal loans would likely drive borrowers to more expensive private loans.

The Republican party's platform states, "The federal government should not be in the business of originating student loans." It adds, "In order to bring down the costs and give students access to a multitude of financing options, private sector participation in student financing should be restored."

Higher ed experts seriously doubt that private loans would ever be cheaper than federal loans, where interest rates are lower across the board. "Republicans have signaled an interest in bringing back banks as middlemen in the school loan program, which would be a costly giveaway that does little to increase access to higher education and affordability," said Mark Huelsman, senior policy advisor at Demos, a New York City-based think tank.

Until 2010, the Department of Education guaranteed federal loans against borrower defaults that were made by bank and non-bank lenders such as Sallie Mae, now known as Navient. The Health Care and Education Reconciliation Act of 2010 removed those guarantees and large banks such as Bank of America, JP Morgan Chase, Citibank stopped originating student loans during the course of the decade. Banks such as PNC, Discover Financial Services and Wells Fargo still make student loans which are more expensive than those made by the Department of Education.

Trump has talked about gearing student loan terms and amounts to the expected income of college graduates once they enter the workforce--something he endorsed in a Columbus, Ohio speech to high school and college students during the last days of the election campaign.

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