Biden should permanently abolish interest on student loans, says key senator
As millions of borrowers head toward the end of the student loan payment pause, a key Senate Democrat is calling on President Biden to permanently eliminate federal interest on student loans.
Interest and payments on student loans have been suspended for two years
Most federal student loan payments have been suspended since March 2020 under the CARES Act, and all interest on federal student loans has been suspended, providing millions of federal student loan borrowers with lower-rate loans. zero. Originally scheduled to last six months, this relief has been extended several times, first by President Trump and then by President Biden.
Biden’s most recent extension is set to end on May 1, 2022, and there is growing speculation that Biden could issue another extension to the suspension of payments and interest, or adopt other forms of relief. student loans. Earlier this month, White House Chief of Staff Ronald Klain Told Pod Save America that Biden is considering extending the hiatus as well as providing additional relief to student borrowers, potentially including some form of student loan forgiveness. Biden has already opted to extend the suspension of certain collection activities against defaulting borrowers for an additional six months after the pause ends.
Senator calls for permanent suspension of interest on student loans
In a letter sent yesterday, Sen. Michael Bennet (D-CO) joined a growing chorus of advocates and elected officials calling on President Biden to extend the student loan pause again. Bennett argued that a further extension is needed to “help borrowers who are struggling with inflation and the higher costs associated with post-secondary education, including the cost of childcare for student parents. “.
But Bennet went further and called on Biden to permanently make “most federal student loans interest-free.” Bennet argued, “We need to do everything we can to ease the financial burden of student loan debt for borrowers who have taken out loans to pay for their college education. A growing number of borrowers are saddled with high student debt instead of buying a home, having children and starting a business.
Student loan interest can be crippling for borrowers
Under a normal payment plan for most forms of consumer debt, a borrower’s monthly payment is enough to cover accrued interest as well as a certain amount of principal. As a result, the debt is gradually repaid over time.
But for federal student loans, this is often not the case. During most periods of deferment from school, hardship abstention, and grace periods (during which no payments are due), interest generally accrues on most types of federal student loans, which results in borrowers owing much more than they started with when they enter repayment. For borrowers repaying their loans under an income-tested repayment plan (where monthly payments are based on the borrower’s income), their normal monthly payment may not be high enough to cover interest accrued in a given month, causing the loan balance to grow over time, even as they make payments.
To make matters even more troublesome, certain events under federal law can trigger interest “capitalization” — a process by which all accrued interest is added back to the principal balance. This has a cumulative effect. Since interest is charged as a percentage of the loan principal balance, compounding can lead to runaway growth in the balance.
Studies have shown that accumulating and compounding interest can trap student borrowers in debt for decades. A joint report published last summer by the National Consumer Law Center and the Center for Responsible Lending found that 63% of student borrowers who made payments during the CARES Act payment pause owe even more now than they borrowed originally. A third of these borrowers owe more than 125% of their original loan balance, despite the fact that no interest accrued during the payment break.
“The data reinforces what we already knew: Borrowers want to make progress on their loan repayments, but our broken student loan system has made it difficult, resulting in loan balances that in many cases exceed largely the original amount borrowed,” the Center for Responsible said. Loan lead researcher Robin Howarth in a statement in August.
Will Biden extend the payment suspension, eliminate student loan interest, or embrace student loan mass forgiveness?
With just 38 days left until the scheduled resumption of federal student loan repayments, time is running out for Biden to act.
“Especially at a time when inflation is on the rise, we cannot ask people to start making these crippling payments again,” Rep. Pramila Jayapal (D-WA), chair of the House Progressive Caucus, said in a statement. Tweeter yesterday. “It’s time to cancel at least $50,000 of student debt per borrower. Jayapal is one of several current and former Democratic officials calling on Biden to extend the moratorium on payments and interest and enact broad student loan forgiveness.
So far, the Biden administration has not publicly indicated that it has a specific plan to provide more relief. “The president is going to look at what we should do on student debt before the pause expires, or he will extend the pause,” White House chief of staff Ronald Klain said in early March. “Whether or not there is executive action [on] canceling student debt when payments resume is a decision we will make before payments resume.
Further Reading on Student Loans
Extend the pause on student loans until 2023? Biden can do it.
Who qualifies for the $6 billion student loan forgiveness announced by the Biden administration
Biden could extend student loan suspension and plans to forgo loans, White House official says
Thousands of Jobs Qualify for Expanded Student Loan Forgiveness Program