"President Joe Biden is doubling down on his student loan forgiveness promise with a new plan that would bring relief to over 30 million Americans," Yahoo Finance reports.

..."But with an income-driven repayment plan (IDR), which adjusts monthly payments to be affordable, the payments can be so low they don’t cover your monthly interest charges, which continue to build up.

For example, if you qualify for a $5 monthly payment under IDR, that payment would not be enough to cover your interest — resulting in negative amortization or “runaway interest.” In other words, interest would accrue more quickly than the borrower can pay down their principal and interest, the NASFAA said, resulting in the balance ballooning over time.

Additionally, under all IDR plans, any remaining balance is supposed to be forgiven on loans that aren’t fully paid at the end of the repayment period (either 20 or 25 years), but for some borrowers that didn’t happen.

Still, “runaway interest” happens well before borrowers reach the point of forgiveness on IDR plans, the NASFAA told Yahoo Finance."

NASFAA's "Notable Headlines" section highlights media coverage of financial aid to help members stay up to date with the latest news. Articles included under the notable headlines section are not written by NASFAA, but rather by external sources. Inclusion in Today's News does not imply endorsement of the material or guarantee the accuracy of information presented.

Publication Date: 4/16/2024