Latest news with #interestaccrual
CBS News
8 hours ago
- Business
- CBS News
Student loan interest for millions resumes on Aug. 1. The average monthly payment could rise $300.
Millions of people with student loans who had signed up for a Biden-era repayment plan will start seeing interest accrue to their accounts starting on Aug. 1, a change that could result in an additional $300 in monthly costs for the typical borrower, according to one analysis. The Department of Education announced on July 9 that it planned to restart charging interest for borrowers enrolled in the Saving on a Valuable Education, or SAVE, plan, which was created by the Biden administration in 2023 to help lighten the financial burden faced by millions of student loan borrowers. But two courts last year issued injunctions against the SAVE plan, effectively halting the repayment program. In response, the Biden administration moved all of the SAVE plan's enrollees into zero-interest forbearance, meaning that their loans were temporarily placed on hold and interest stopped accruing. The Education Department says resuming interest on the loans represents a measure of "fiscal responsibility," according to its July 9 statement. But the monetary impact on the roughly 8 million borrowers enrolled in the SAVE plan could be significant, given that a typical borrower could see an increase of $300 per month due to new interest charges, according to a calculation by the Student Borrower Protection Center, an advocacy group for people with higher-education debt. SAVE enrollees can opt to remain in forbearance, which means they won't need to make monthly payments, but "the most significant impact is that your total loan balance will start growing again" because interest will resume, Bethany Hubert, a financial aid specialist at lender Earnest, told CBS MoneyWatch. She added, "If you choose not to make payments, the accruing interest can really balloon your balance, making it much more challenging and expensive to pay back over time." While the typical borrower could see costs increase by about $300 per month, or $3,500 per year, the specific increase will depend on your loan balance. Borrowers can check how the resumption of interest on their loans will impact their payments by going to the loan simulator on the Federal Student Aid website, Hubert said, although she noted that it might not yet include all the recent changes impacting student loans. Borrowers should evaluate the four repayment plans available, which can be found at here at the Federal Student Aid website, Hubert said. There's also a new repayment plan in the works that borrowers could consider, called the Repayment Assistance Plan (RAP), which is due in 2026 and is part of the "big beautiful" tax and spending bill signed into law by President Trump on July 4. "For earners who make less than $10,000, their [monthly] payment will be $10 under RAP," Hubert said. For those with adjusted gross income (AGI) above $10,000 per year, the repayments will be based on 1% to 10% of their income minus $50 in payments each month for each child the borrower has. "With that in mind, we can estimate that a borrower who has an AGI of $45,000 and no children would have their monthly payment set at $150," she added. "At a minimum, I would suggest trying to make payments that cover the monthly interest as it begins to accrue to prevent your balance from growing," she added.
Forbes
06-06-2025
- Business
- Forbes
Borrowers Receive Misleading Student Loan Interest Notices — Here's What To Know
Hundreds of thousands of federal student loan borrowers received a formal notice this week warning them that interest is accruing on their balance, and suggesting that they make a payment. But for many of these borrowers, interest isn't actually accruing, and the notice provided misleading information. The federal student loan repayment system remains plagued by dysfunction, making the environment ripe for confusion and misinformation. More than eight million borrowers who had enrolled in the SAVE plan remain stuck in a forbearance after a court blocked the program last summer. The ruling came in response to a legal challenge brought by Republican-led states. Meanwhile, the Department of Education and its contracted loan servicers are trying to work through a two-million application backlog for income-driven repayment plans after the Trump administration shut down the system earlier this year following a new court order related to the SAVE plan litigation. Then, last month, Republican lawmakers pushed legislation through the House to reshape the federal student loan repayment system, although no legal changes are in effect quite yet. Here's the latest, and what borrowers should know about student loan interest accrual during these turbulent times. At least eight million federal student loan borrowers who had been enrolled in the SAVE plan are currently in a forbearance. A federal appeals court issued an injunction last summer blocking the program after a group of Republican state attorneys general filed a legal challenge, arguing that the Biden administration exceeded its authority by crafting a student loan repayment plan with such generous terms. The court blocked, but did not strike down, the SAVE plan, as the challenge continues. As a result, SAVE plan borrowers were put into a forbearance. The SAVE plan forbearance period does not count toward student loan forgiveness for both IDR purposes or for Public Service Loan Forgiveness, or PSLF. But borrowers don't have to make payments during the forbearance, and interest should not be accruing. 'You are in a general forbearance,' the Department of Education tells SAVE plan borrowers on its website, 'because your loan servicer is not currently able to bill you at an amount required by the court injunction. You will be in this forbearance until servicers are able to accurately calculate monthly payment amounts or the court reaches a decision on the availability of the SAVE Plan.' The department's notice indicates that during this general forbearance, 'You do not have to make your monthly payments on your student loans, interest is not accruing, and time spent does not provide credit toward Public Service Loan Forgiveness (PSLF) or IDR.' This week, millions of federal student loan borrowers who are in the SAVE plan forbearance received a notice from their loan servicer, MOHELA, telling them that interest is accruing on their loans. 'In an effort to keep you updated on your federal loan(s), we have enclosed details about your loans), including the accrued interest, interest rate, and total balance,' reads the notice. "The loan(s) listed in this letter are currently in forbearance. Although no payments are due at this time, interest continues to accrue on your loan(s) during the forbearance period. You have the option to pay the interest during forbearance." But for many of these borrowers, interest should not be accruing, and this mass notice provided misleading information, suggesting that borrowers should make payments on their student loans when no payment is due and no interest is accruing. Borrowers still in the SAVE plan forbearance can look to the second page of the letter, which should indicate that the interest rate for the covered loans is 0%, and no interest has accrued so far this year. After the notices were sent to borrowers, MOHELA issued a statement on its website clarifying the situation. 'If you recently received an interest notice for your student loan account, please know that this is not a bill, and no action is necessary at this time,' said MOHELA. 'For borrowers on the SAVE administrative forbearance, interest is currently set at 0%. Refer to your loan details in your notice.' Some borrowers in the SAVE plan forbearance are reporting that interest actually is accruing on their student loan balances. These borrowers are reportedly being told by their loan servicer that this is a mistake, and that the Department of Education should correct the error when the SAVE plan forbearance ends, likely later this year or sometime next year. However, some borrowers may be understandably concerned about this. If you're in the SAVE plan forbearance and not sure whether interest is accruing on your student loans, there are a few things you can do: Federal student loan borrowers should be aware that while the SAVE plan forbearance halts interest accrual, interest will continue to accrue on balances during most other forbearance periods. 'If you get a forbearance, you're still responsible for the interest that accrues while you're not making payments,' says general Department of Education guidance on forbearance periods. Importantly, this includes 'processing' forbearances, where a loan servicer places borrowers in forbearance if a student loan repayment application (such as for an IDR plan) takes longer than a couple of weeks to complete. 'Servicers may place borrowers into a different forbearance category, known as processing forbearance, if the servicers need additional time to process those borrowers' applications to enroll in IDR, recalculate their payments on an IDR plan, or recertify their incomes for their IDR plan,' says the Department of Education. 'In contrast to the general forbearance for borrowers enrolled in SAVE (previously known as REPAYE), interest will accrue while a borrower is in processing forbearance. Additionally, time spent in processing forbearance (up to 60 days) is eligible for PSLF credit. Processing forbearance will last no longer than 60 days." After that, borrowers may return to a general forbearance. Federal student loan borrowers should be aware that it is no longer possible to apply for the SAVE plan following the most recent court ruling earlier this year. This means that borrowers who aren't already in the SAVE plan forbearance cannot enroll, and therefore cannot benefit from the zero interest accrual benefit. Borrowers can still apply for other IDR plans, but interest will continue to accrue during any associated processing forbearance.
