End the black hole that eats up student loan payments

At the beginning of Aubrey Plaza’s recent movie, Emily the crime, which means he’s checking the phone of his student loan servicer, between lunch delivery shifts, to question why his recent $400 in his balance hasn’t been applied. He was surprised by the answer: “Was it about my happiness? Excuse me, how much interest is added per month?” The scene cut to his text what appeared to be a fraudulent credit card ring in the hope that he could get some extra money, fast.

While most people don’t turn to crime to pay off their student loans, the stress of paying off student loans month after month only to see the balance remain still – or even growing – is common. In an effort to make student loans more affordable, the government offers several payment plans that set monthly payments to a percentage of the borrower’s income.

But when millions of people have enrolled in these plans, a problem has emerged: When borrowers’ monthly payments are less than the amount of interest that accrues that month, their balances go up instead of down. Recent studies have found that 75 percent of borrowers in these plans they owe more than they originally borrowed five years after repayment, and even 12 years after starting school. nearly 40 percent of student loans are more than the first thing they borrowed. The problem is most serious for Black borrowers, it should be borrow more go to school with little money to pay. After 20 years, the median Black borrower still owes 95 percent the money they borrowed. Sticky or inflated balances contribute to the $1.7 trillion student loan problem and lead borrowers to feel hopeless or fraud.

The new student loan payment plan the Biden administration has suggested that it recognizes the problem but is only half the solution. The changes to the plan will cut most borrowers’ monthly payments in half to 5 percent of their income, and, like existing plans on income, any balance of the remainder will be canceled after 20-25 years of payments (or a more reasonable 10 years for borrowers of less than $12,000, with an additional year of payments added for each additional $1,000 to borrow up to $22,000). To solve the problem of many people paying less each month than the interest given by the government each month, the administration thinks that waive any monthly interest that exceeds the borrower’s payment.

That change will freeze borrowers’ balances growing up if they make their payments every month. But that won’t put borrowers on the path to decrease their balance through their salary. Like Emily, millions of borrowers will continue to make monthly payments without affecting their balance. And they will still be expected to throw money into this black hole for 20 years – while filling out documents and proof of income every year for the opportunity.

It shouldn’t be like that. In a confused state, student loan service and advocate for low-income borrowers All of these offer flexible, income-based repayment plans. additional help at the time of repayment. Instead of simply writing off any unpaid interest each month – as under the current plan – the government will write off any It’s a difference between the borrower’s income payment and what they would pay on a regular repayment plan for the same period. As a result, the loan balance for all borrowers will be reduced during the repayment period, leaving nothing to cancel at the end of the year.

Families with student loan debt ended up seeing their balances drop with each payment. And borrowers can pay off their loans faster – allowing them to get out from under the weight of their student loans and get on with their lives.

This is not a new idea. Harvard Law School, among others, offers its graduates a “Low Income Protection Plan” which operates on the same principle, subsidizing income-based student fees to ensure that its graduates can make annual progress toward paying off their loans and become debt-free when every 10 years. Such financial protection, and grace, should not be reserved for Harvard students. Everyone should have a way to pay off their student loans, and it shouldn’t be a crime to do so.

Abby Shafroth, is an attorney and director of the Student Loan Assistance Project at the National Consumer Law Center (NCLC) and an expert on student loan law and policy.

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