Interest-free student loans offered by Republicans

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Interest-free student loans just offered to Congress – by a republican.

Here’s what you need to know.

Student loans

Senator Marco Rubio (R-FL) reintroduced a law – the Exploiting Opportunities for Americans Now Act (LOAN) – that would eliminate interest rates on federal student loans. Yes, you read that right. “No Interest on Student Loans” and “Republican”. It looks like most Democrats have proposed changing student loans, but Rubio believes that could change the future of student loan repayment. The Loan Act, which Rubio first introduced in 2019, would help student loan borrowers who are burdened with student loan debt pay off their student loans faster. Rubio first introduced the LOAN Act in May 2019. Student loans have become a hot topic on Capitol Hill this week, with debates over canceling student loans.


Student loan without interest

Here’s how the Loan Act would work:

  • Would apply to federal student loans;
  • Eliminate interest on federal student loans;
  • Instead, would use a one-time, non-cumulative origination fee that student loan borrowers will pay over the life of their student loan
  • This origination commission, also called “financing commission”, will start on July 1, 2022;
  • Origination costs will not increase over time; and
  • Student loan borrowers will automatically be placed in an Income-Based Repayment Plan (IBR), in which they pay 10% of their adjusted gross income above 150% of the federal poverty line, except in hardship. unforeseen financials.


Student loans: fees

The proposed legislation would eliminate your interest rate, but there would be a one-time fee equivalent to:

Undergraduate student loans: 20% of the principal amount of student loans

Graduate student loans: 35% of the principal amount of student loans

Parent PLUS Student Loans: 35% of the principal amount of student loans

However, the US Secretary of Education may reduce or reimburse these financing fees based on the income of a student loan borrower. For example:

Less than $ 45,000 in revenue: up to 15 percentage points

Between $ 45,000 and $ 95,000 in income: up to 10 percentage points

Income greater than $ 95,000: up to 5 percentage points


Student loans: will Biden bear no interest on student loans?

As a presidential candidate, President Joe Biden has not supported interest-free student loans. Instead, Biden focused on $ 10,000 student loan cancellation. Biden also focused on simplifying student loan repayment by revising income-based repayment plans to be based on 5% discretionary income. He also wants more student loan borrowers to get student loan forgiveness under the public service loan forgiveness program, and he would make two and four-year public colleges and universities free. As president, Biden canceled $ 3 billion in student loans and twice extended student loan relief to millions of student loan borrowers. The topic of eliminating interest on federal student loans has been raised by some progressives, but the idea never caught on during the 2020 presidential campaign, in Congress, or during the Biden presidency. Likewise, when Rubio originally introduced the Loan Act, the proposed legislation had no co-sponsors – either Republicans or Democrats. Now, with Rubio’s reintroduction of the student loan bill, it remains to be seen whether there is support among Democrats or Republicans to remove federal student loan interest rates.


Student loans: final analysis

While there would be no interest rate, there would be significant one-time financing costs. While these fees may be reduced based on a student loan borrower’s income, they could nonetheless constitute a relatively large portion of the federal student loan principal balance. That said, the bright spot for student loan borrowers is that under this proposal there is no compound interest, which means interest is charged on both principal and interest. . Compound interest can become very expensive for student loan borrowers, even with a relatively low initial student loan balance.

Including Biden’s extension of student loan relief, federal student loan borrowers will get $ 110 billion in student loan cancellations. As of March 2020, student loan borrowers have not benefited from any interest accrual and temporary student loan forbearance, resulting in $ 5 billion in savings each month. Going forward, Rubio strives to help working families pay off their student loans without the heavy burden of costly student debt. How? ‘Or’ What? The origination fees, which will not increase over time, help student loan borrowers have more certainty about their student loan payments because they have more transparency about their future student loan balance. Additionally, student loan borrowers who are currently enrolled in college or university can continue with the current federal student loan system, or they can choose federal student loans with no interest rate. Under this proposal, student loan borrowers can repay their student loans, including origination fees, early without penalty. Any federal student loan borrower who earns less than 150% of the federal poverty line would not have to pay each month for their student loan. The Biden administration and Congress could make many reforms to your student loans when it comes to paying off student loans, canceling student loans, and canceling student loans. However, removing interest on student loans does not appear to be at the top of this agenda.

If you have student loans, your interest isn’t going away anytime soon. As of February 1, 2022, your regular interest rate will resume applying to your federal student loans. Make sure you are ready to pay off your student loan. Here are some smart options:


Student loans: more reading

Here’s what Biden’s student loan relief means for your student loans

Biden extends student loan relief until January 31, 2022

Student loan cancellation focused today on Capitol Hill

Student loan cancellation may help more borrowers, but that doesn’t mean Biden will cancel everyone’s student loans

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