Interest on student loans set to continue waiving next year: Senators

  • A group of Democratic senators called on Biden to waive interest on student loans next year.
  • Student loan payments and interest are expected to resume on February 1 after a hiatus of almost 2 years.
  • For many borrowers, high interest rates prevent them from repaying their original balances.

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Interest rates on student loans can cause borrower debt to skyrocket, leaving many people with more balances than the amount they originally borrowed.

This is why a group of Democrats do not want interest to be part of the resumption of student loan payments on February 1.

On Monday, 14 Democratic Senators, including Georgia Senator Raphael Warnock and Oregon Senator Ron Wyden, sent a letter to President Joe Biden asking him to continue waiving interest on federal student loans for the duration of the pandemic, even after payment recovery resumes. Lawmakers have said Biden can use his authority under the HEROES Act of 2003, which they said would ensure borrowers “are not placed in a worse financial position due to the national emergency.”

“While borrowers will soon start making payments again, many still face financial challenges as our country strives to rebuild better after the COVID19 pandemic,” the letter said. “Accumulating interest on student loans can be a daunting task for borrowers with the lowest incomes or the highest student debt. “

Senators also called on Biden to give the estimated 7.5 million defaulting student loan borrowers a “fresh start” to keep them from falling further behind on their debt, which could lead to wage garnishment and the garnishment of federal benefits, such as the child tax credit. .

According to the Department of Education, the interest relief on student loans has saved federal borrowers an additional $ 5 billion each month, and maintaining this relief even after payments resume will not only help borrowers. and the ministry to ease the transition to repayment, but it will ensure that borrowers will not be in an even more difficult financial situation because of the high interest rates, the lawmakers wrote.

As Insider previously reported, many borrowers would likely be debt free right now if the interest on their loans didn’t continue to rise.

“I got so badly taken in interest that I paid off the majority of my loan, but yet the banks benefit, not me,” one borrower told Insider. “I’m afraid this is an endless cycle where I can’t give my daughter the life I want to give her and I can’t give myself the life I want to give myself.”

Congress sets the interest rates on student loans each year, but the rate applies to the year the loan was taken out. So even if the current interest rate is lower than a rate set ten years ago, if a borrower took out a loan ten years ago, he must continue to pay his debt at that higher rate.

The letter from lawmakers comes as millions of borrowers prepare to resume student loan payments in two months after what will be a nearly two-year hiatus. Given that it seems unlikely that Biden will write off student debt before payments resume, advocates and Democrats are calling on the president to continue with pandemic relief measures as the COVID-19 cases are ongoing.

On Monday, for example, Senate Majority Leader Chuck Schumer called on Biden to extend the payment break after February 1, given the new uncertainty with Omicron.

“This debt is just overwhelming for people,” Schumer said. “If we don’t extend the hiatus, interest rates will pile up. Students owe a fortune. And with omicron here, we’re not doing as quickly as we would like.”

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