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Although students may have shifted their focus onto their summer break, here at Main Street, our financial planners are carefully watching the student loan space, especially as we see some significant changes from select schools regarding the rising rates of tuition. The big question is will we also see changes at the federal level for these loans? Read on to learn about the current and anticipated updates to the education space.
Federal Loan Reduction
The current administration is aiming to reduce its exposure to student loan debt, as delinquency rates on these government-backed loans significantly surpass those of private student loans—largely due to a lack of underwriting standards. Only 38% of borrowers are current on their federal loans, and with Trump and his team in office, the focus is high on minimizing overall national debt and to do this, they are considering all contributing factors including education loans. As more than 42 million borrowers owe federal student loans totaling ~$1.6 trillion, this is a glaring concern for our highly fiscally driven administration. Previous leniency is proving to make this debt a larger concern at the federal level as prior presidents created paths for deferment and forbearance during Covid to keep the economy afloat. A direct effect of these changes would translate into a proliferation of the private student loan space.
Tuition-Freeze Trend
On average, tuition for higher education inflates by roughly 8% per year, meaning that the cost doubles approximately every nine years. In an effort to keep tuition more affordable, select accredited colleges and universities have implemented policies freezing tuition costs for a period of time.
The University of Ohio and the University of Colorado-Boulder, for example, each offer Tuition Guarantees, which keep in-state & out-of-state undergraduate tuition and fees constant for four years for each entering class of new first-year students. The University of Texas and the University of North Carolina have frozen their current undergraduate tuition rates for all students through 2027, and other state universities, such as the University of Virginia and Indiana University are actively considering similar measures.
Be Proactive
As the role of the Federal Government in the U.S. education system shrinks, there are some future likely outcomes:
- The trend of tuition freezes can potentially continue, as colleges and universities respond to the popularity of fixed tuition to demonstrate a dedication to cost-effective education.
- The implementation of annual and lifetime borrower limits for federal student loans along with simplified repayment schedules.
- The likely increase in utilization / need for private student loans by banks and specialized lending companies
- Saving for higher education has become more critical than ever especially with family planning trends showing family formation later in life, which can also affect one’s own retirement plan.
We encourage you to review the table below including common education funding accounts and schedule a discussion with a Main Street Research Financial Planner to discuss and understand how it aligns with your financial goals.
*other debt instruments can be leveraged as a secondary funding tool