The student loan policies of the Trump administration, backed by Congressional Republicans, could pose a significant risk to the U.S. economy, potentially overshadowing concerns about Trump’s tariff policies, according to an expert.
What Happened: The student loan debt in the U.S. stands at an alarming $1.6 trillion, owed by nearly 43 million Americans, according to the U.S. Department of Education. Despite the gravity of the issue, discussions about student loan relief in Congress have been replaced by efforts to increase the burden on borrowers, as reported by the Los Angeles Times.
Aissa Canchola Bañez, Policy Director for the Student Borrower Protection Center, recently voiced concern over the potential economic harm this could cause. She criticized the administration for economically pressuring millions of Americans, which could further impact an already struggling economy.
"Instead of helping the 5 million borrowers that have fallen into default and the millions more that are behind and now at risk of default later this year, this Administration appears set on inflicting massive economic harm on millions of Americans.
Since the resumption of student loan payments, credit scores of about 9.7 million borrowers have significantly dropped, as per a report by the Federal Reserve Bank of New York. This has resulted in increased rejection rates for mortgage refinancings and other loans, which could further slow down the economy.
The budget bill, advanced by the GOP-controlled House, may heighten the financial strain on families already grappling with the cost of higher education. Critics contend that the primary winners of these proposed changes would be private student loan providers, including banks and private equity firms.
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Why It Matters: On April 21, Education Secretary Linda McMahon announced that defaulted loans would be sent to collections, allowing wage garnishment and seizure of tax refunds and Social Security benefits. Following public backlash, the administration reversed plans to take Social Security from about 450,000 defaulting borrowers aged 62 and older.
Nevertheless, proposed changes by Republican lawmakers could exacerbate the student loan crisis, raising the cost of college for millions and accelerating a shift towards private lending. The draft legislation proposes eliminating or restricting several key federal student loan programs, which could deepen inequities and reduce access to higher education.
Furthermore, the Trump administration’s decision to restart collections on defaulted federal student loans could result in millions of borrowers facing a “financial scarlet letter,” putting home purchases and job prospects at risk. The New York Federal Reserve projects a surge in defaults this summer, with roughly 2.2 million borrowers already seeing credit scores plunge more than 100 points since negative reporting resumed last fall.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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