Biden’s broad new student loan forgiveness plan unveiled this week would provide relief to borrowers who have experienced « runaway interest. »
President Joe Biden unveiled a broad new student loan forgiveness plan this week that could provide relief to up to 30 million borrowers.
“I said I wouldn’t back down from using every tool at our disposal to get student loan borrowers the relief they need,” Biden said in a statement on Monday. “That’s why today we’re announcing new plans that, if implemented, would cancel student debt for millions more.”
The new loan forgiveness initiative, which is distinct from Biden’s initial student debt relief plan that was struck down by the Supreme Court, focuses on several categories of borrowers. One such category involves borrowers who have been harmed by what Biden characterized as “runaway interest” — a significant problem for many people struggling with student debt.
Here’s how the new initiative would forgive student loan interest.Student Loan Forgiveness For Capitalized Interest
It is not uncommon for borrowers to owe much more than they originally borrowed, often despite being in repayment for many years. The Biden administration is targeting these borrowers for student loan forgiveness because of the widespread impacts of this phenomenon.
There are several reasons for broad interest-related student loan balance increases. First, unsubsidized federal student loans start accruing interest immediately, right after disbursement, even while the borrower is in school. Only subsidized federal student loans freeze interest during in-school enrollment periods. Since most federal student loans are unsubsidized, that means that many borrowers start off owing more than they originally borrowed as soon as they enter repayment due to interest that accrued while they were in school.
