Report: Feds should issue no-interest student loans

A new report from a Boston-based research center found that nearly a quarter of all student loan payments made in 2019 went to interest, and is calling for a no-interest loan structure to be implemented to address the college debt crisis.

The Hildreth Institute report said that if the federal government was to implement this program change, it would provide economic relief to current and future borrowers, who are often saddled with so much interest that they can’t make substantial progress on paying down their principal student loan balances.

The report claims that interest payments are taking up a larger portion of student loan payments than ever before — surging from $13.1 billion in 2015 to $22.4 billion in 2019.

“Under the current system, many student borrowers see their outstanding balances grow even as they make their monthly payments,” said the report’s author, Bahah Akman Imboden, managing director of the Hildreth Institute. “Low-income students and students of color are disproportionately impacted by this.”

Akman Imboden said that 20 years into repayment, the median Black borrower still owes 95% of the amount they borrowed, compared to the median white borrower who has already paid off the majority of their loan.

The concept of negative amortization, the report said, refers to interest accumulating faster than borrowers are able to make payments on their loans. The accumulated interest is added to the principal amount, compounding interest and increasing future monthly repayment obligations.

The report notes that this struggle leads borrowers to seek out incomebased repayment plans, which offer lower monthly payments, but often lead to a much larger loan amount that needs to be paid off due to the interest that accumulates during the debt extension.