While US courts uphold student loan forgiveness, the federal government is finding other ways to erase the debt. Details here
The deferral of loan repayments is valued as the increasing interest on this debt. The federal government then capitalizes on the unpaid interest and adds it to the principal amount of the loan. As a result, the loan amount turns out to be much higher than the borrowed amount. Authorities also capitalized on interest. If the borrower interrupts loan repayments,
Project director Sarah Sattelmeyer, who studies student loans at New America, said, “breaking free from the loan capitalization system is a win-win situation because it confuses and increases balanced growth.”
The student loan program has been formalized to bring many changes over the past few weeks, one of which is almost the elimination of capitalization of student loans. But the federal district judge in Texas on Thursday rejected the president’s sweeping student loan forgiveness plan.
The Ministry of Education stopped accepting requests for one-time debt relief; however, the administration is working to change the judge’s decision. And the states have already indicated that they could go to the Supreme Court to obtain a decision in their favor.
- How much interest is capitalized by the Ministry of Education?
Capitalized interest for fiscal year 2019 alone is estimated at nearly $22 billion.
- What will debt forgiveness cost?
The CBO has estimated that Biden’s student loan relief could cost US$400 billion.
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