As student loan payments resume in just a few weeks, Congressional Democrats introduced a bill that would eliminate student loan interest.
If enacted, this would effectively make permanent one of the core features of the ongoing student loan pause, which is set to end later this month. Sponsors of the bill argue that the legislation is necessary in the wake of the Supreme Court ruling that struck down President Joe Biden’s signature student loan forgiveness plan earlier this summer.
Here’s what borrowers should know.
Bill Would Eliminate Interest In The Wake Of Supreme Court Ruling On Student Loan Forgiveness
Congressional Democrats led by Rep. Chellie Pingree (D-ME), Rep. Joe Courtney (D-CT), and Sen. Peter Welch (D-VT) unveiled the Student Loan Interest Elimination Act this week. The bill would allow current federal student loan borrowers to refinance their loans within the federal system at a zero percent interest rate.
Interest rates for most federal student loans are fixed based on the rates set by Congress at their initial disbursement. Borrowers have no way of refinancing federal student loans at a lower interest rate within the federal student loan system. Private refinancing options are available, but not at zero percent, and borrowers who refinance through a private lender would lose out on numerous federal student loan program benefits, including access to federal student loan forgiveness programs.
“Students and families are already saddling the rising costs of a college education. The federal government should not exacerbate the problem by making money off borrowers’ federal student loans” said Rep. Courtney in a statement. “This bill is particularly important in the wake of SCOTUS’ decision to strike down President Biden’s student loan forgiveness program. Students and families are counting on Congress to act on commonsense solutions to lower the cost of college and my bill will help achieve that goal.”
Effect Would Be To Extend Interest Benefits Of Student Loan Pause As Payments Resume
The bill, if passed, would effectively extend a core feature of the student loan pause, which has been ongoing for over three years following the beginning of the Covid-19 pandemic. In addition to pausing payments, the student loan pause has also suspended all interest accrual for borrowers with government-held federal student loans.
“The COVID-era student loan payment and interest pause was a critical lifeline for hardworking Americans and made clear just how bad the student loan crisis had become… Millions of borrowers across the country are facing down crippling debt with payments set to resume,” said Rep. Pingree. “The Student Loan Interest Elimination Act will help ease the financial burden that unfairly comes with pursuing higher education and will work to reform the system that fostered this crisis in the first place.”
The student loan pause is set to end later this month. President Biden signed federal spending legislation earlier this summer which codifies the end of the moratorium. Barring a new national emergency, Biden will not be able to extend the relief again. Interest is set to start accruing on September 1, and the first student loan payments will be due in October.
Other Student Debt Relief Initiatives Impacting Interest
The new student loan interest bill looks unlikely to pass in the near term, as Republicans maintain narrow control over the House of Representatives. There are no Republicans co-sponsors of the bill.
However, the Biden administration is advancing other student debt relief measures that will impact interest accrual. New regulations that went into effect on July 1 will permanently eliminate several triggers for interest capitalization, which can cause loan balances to increase substantially over time due to the compounding effects of interest accruing on interest. In addition, the Biden administraiton is rolling out the SAVE program, a new income-driven repayment plan that will waive excess interest accrual for borrowers whose monthly payments are not high enough to cover interest.
Further Student Loan Forgiveness Reading
5 Student Loan Forgiveness Updates As Payments Resume In A Matter Of Weeks
Here’s When The Next Student Loan Forgiveness Notifications Will Go Out
New Changes Expand Student Loan Forgiveness For Public Service Borrowers
Here’s When Student Loan Payments Resume, And What Borrowers Should Do Now
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