Less regulation, sure. But the big prize is reducing the feds’ role.
The student loan business got a lot tougher during President Barack Obama’s time in the White House. The victory of Donald Trump and congressional Republicans promises to turn that around dramatically.
In 2010, Obama and a Democratic-controlled Congress ended a program wherein banks and private lenders made government-backed student loans. The banks earned fees and interest payments while the feds bore the cost of defaults. Under a new law, the government alone would make those loans directly.
Next, in 2013, the government cut interest rates on new federal student loans to levels often half of those offered by banks on private loans. Throughout his administration, Obama continually made loan repayment plans more generous to student debtors, further undercutting the case for borrowing from lenders such as SLM Corp., better known as Sallie Mae. Michael Tarkan, director of research at Washington-based Compass Point Research & Trading, says that’s made student loan companies’ stock unattractive for some investors he talks to. “When I first bring up Sallie Mae, they throw their hands up and say, ‘I can’t touch that. It’s student debt,’ ” he says.
Things were probably going to get worse for the industry had Hillary Clinton won the election. She advocated free tuition at public colleges, which, though tough to get through Congress, likely would’ve reduced demand for new loans. A Clinton victory would also have emboldened the Consumer Financial Protection Bureau, which has been documenting complaints of misbehavior and shoddy customer service by companies that service student debt. Last year, the CFPB told Navient Corp., the nation’s biggest loan servicer…