In 2016, we saw one of the most hotly-contested presidential elections in recent history. With political change sweeping across the country, there is no doubt that we will see new laws and rules in the United States. This will impact people in a variety of different ways — including individual financial health.
While no laws have been enacted just yet, there are certain policy decisions that could have a serious impact on your finances — for better or for worse. Read on to learn how Trumponomics and potential new laws could affect you financially in 2017 and beyond.
Privatization of Student Loans
Currently, students at qualified higher education institutions may be eligible for either subsidized or unsubsidized student loans available from the federal government. These loans benefit borrowers in a number of ways, from subsidized interest payments to multiple repayment options to protections for borrowers. Federal student loans are incredibly popular, and make a college education more widely available for working Americans. However, the incoming administration has indicated that it would like to return to private student loans — taking the federal government out of the mix.
If student loans are privatized, this could have a negative impact on borrowers across America, but particularly those in lower income brackets. This is because private student loans have stricter criteria compared to the Federal government. In some cases, having a creditworthy co-signer is a necessity. Students without co-signers would not be able to access these loans which may prevent them from obtaining a degree. If borrowers do qualify for student loans, then they will likely have higher interest rates and fewer protections compared to federal options.
Private student loans may also be denied to students who choose to study in particular fields. The Trump administration has stated that student loans should be based in the “risk” associated with the degree program. Student who choose to study in a field that has less certain job prospects may find themselves with high interest rates on federal or private student loans — or entirely barred from borrowing money.
Right now, these options are just possibilities. Nevertheless, they could have a serious impact on the ability of students to borrow money, to repay their student loans at a fair interest rate, and to obtain a degree in their chosen field.
The Trump administration has stated that it wants to simplify and cut taxation in our country. This will be accomplished in part by reducing the number of tax brackets from 7 to 3, with the top tax bracket paying 25% rather than 39.6%. This plan would also increase the standard deduction, restrict itemized deductions and eliminate the alternative minimum tax.
So what would this mean for your wallet? If this plan is enacted, then most Americans would see a small increase in their after-tax income of .08%, according to the Tax Foundation. The wealthiest Americans would see a much larger increase in their income of 10.2 to 16%. However, while this plan may decrease taxes and increase wealth, it will also serve to reduce federal revenues by over a trillion dollars. For this reason, a tax plan that slashes taxes for most Americans would not likely be successful. If it does go through, however, many Americans will see an immediate benefit in slightly lower taxes. The biggest tax breaks will go to people with the highest incomes.
Higher Mortgage Interest Rates
In the aftermath of the election, mortgage rates began rising significantly, up to 4% from as low as 3.34% in the previous 12 months. This increase was expected due to uncertainty in the market after the election. Interest rates for mortgages are set in part by the Federal Reserve which has held short-term interest rates relatively low (with increases set to happen gradually). If these rates are increased more quickly under President Trump, then mortgage rates are expected to jump accordingly. If that happens, then housing sales will likely remain stagnant, and home values will either stay the same or decrease due to less activity in the market.
As with student loans, the Trump administration has signaled that it intends to move mortgage loans from the federal government to private banks and to reduce regulation on the housing market. This could make mortgages far more expensive and lead to another housing bubble. At any rate, there are resources and tools to help you figure out your financial situation. One tool, the mortgage calculator, was literally designed to help you predict future monthly payments for any tax, interest, and insurance scenario.
It may be too early to know exactly how politics will impact your finances in the coming months and years, but some early signs point to more challenges for working families across the United States.