What a Second Trump Presidency Could Mean for Your Debt
Between home loans, car loans, student loans, credit card bills and the rest, America owes an arm and a leg. According to the New York Fed, household debt increased by $184 billion in the first quarter of 2024, reaching a record $17.69 trillion.
It’s not hard to understand why.
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The defining economic storylines of the Biden economy have been high inflation and the interest rate hikes the Fed has used to tamp it down. However, since the president directly controls neither prices nor rates, will anything change if Donald Trump ousts President Biden in November and wins another four years in the White House?
“A second Trump term could have significant implications for personal debt, based on his past policies and current campaign promises,” said Ryan Jacobs, founder and managing partner of Jacobs Investment Management.
Here’s a look at what a second Trump presidency could mean for your debt.
Deregulation Could Empower Credit Card Companies To Make Revolving Debt More Expensive
The inflation that defined much of the Biden economy forced America to take on more credit card debt to keep up with rising prices. To make matters worse, just as they started charging more frequently, high interest rates made the debt more expensive.
The quarterly New York Fed report from the final quarter of last year indicated widespread financial distress as credit card debt grew by $50 billion to hit a record $1.13 trillion. But what impact could a second Trump term have?
“Trump’s administration previously rolled back certain provisions of the Dodd-Frank Act, which may have impacted consumer protections,” Jacobs said in reference to President Obama’s landmark 2010 banking bill that imposed strict regulations on lenders in the wake of the Great Recession. “A second term might continue this trend, potentially leading to fewer regulations for credit card companies. This could result in higher interest rates and fees for consumers, although supporters argue it could also increase credit availability.”
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According to the Cato Institute, one of Dodd-Frank’s “unintended consequences” for housing was that the law “imposed more overhead costs on each specific loan” and took away the incentive for banks to process smaller loans for lower-income borrowers.
Like many Republicans, Trump was on record as despising Dodd-Frank and worked to undermine it early in his presidency.
“Under Trump, the Housing and Urban Development (HUD) department focused on reducing regulations to stimulate housing markets,” said Jacobs.
More of the same in 2024 could make it easier for you to take on housing debt, which is good if you’re struggling to get a loan you can responsibly assume but bad if it enables dangerous borrowing.
“A continued emphasis on deregulation could make obtaining mortgages easier for some, but it might also increase the risk of higher interest rates and fewer consumer protections, potentially impacting those with less favorable credit,” said Jacobs.
Student Borrowers Should Expect Little Relief From an Adversarial Administration
According to the Center for Economic and Policy Research, the “student debt crisis would likely worsen under a second Trump administration.”
The organization reports that for the first time, America’s $1.6 trillion college debt actually declined over the last year thanks to President Biden’s policies, which forgave a significant amount of student debt and made it easier for borrowers to repay. The president achieved these measures despite the Supreme Court’s rejection of his 2021 plan to cancel more than $400 billion in federal student aid.
Those policies are almost certain to stop if Trump is re-elected, as the former president has vowed to roll back Biden’s initiatives and quash any attempt to let student borrowers off the hook for loans they signed for and agreed to repay.
“Changes to federal student loan forgiveness programs could affect those relying on these benefits,” said Jacobs.
Deregulation Will Spur the Most Change, and the Results Will Be a Mixed Bag
Interest rates have the most immediate impact on borrowers. When they’re low, loans are cheap and people can afford to borrow more. When they’re high, borrowers have to pinch their budgets and settle for less home, less car and less college to make room for hefty finance charges — but presidents don’t control interest rates.
Therefore, any impact Trump has on the system will come mostly from his ability to loosen regulations.
“Overall, Trump’s focus on deregulation could lead to a mixed impact on personal debt,” said Jacobs. “While some consumers might benefit from easier access to credit and loans, others might face higher costs and reduced protections. It’s essential for individuals to stay informed about policy changes and manage their personal finances accordingly.”
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