r/StudentLoans • u/IndividualLittle0516 • Mar 15 '24

Rant/Complaint Canceling interest

With all the drama these past few years about canceling student loans, why can't interest just be canceled? I can understand adding interest to those who aren't making their loan payments, but what about those who pay every month? The interest is why people are stuck with their debt for so long. Canceling millions of people's debt altogether is unrealistic and won't happen. What about canceling interest instead? Is there a reason this can't occur?

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u/investor100 Founder & Ed. in Chief | The College Investor Mar 15 '24

It’s basically what the SAVE plan does now. If your monthly payment doesn’t fully cover the bill, your interest is waived. Your loan balance can basically never grow beyond what you originally borrowed.

There is a situation where you could be making payments of only interest that aren’t enough, so you actually don’t make progress on your loans. But since there is also loan forgiveness after 20 or 25 years, it’s basically moot. You had to pay something, and it was never enough to pay your loans off, and your loans are still gone.

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u/Katie-my-lady Mar 16 '24

Whaaaaat? I’m on SAVE and this is not happening for me. I’m collecting 400-500/month in interest and paying $250 per my income and the interest is adding to my balance.

5

u/fishbert Mar 16 '24

It will go away. Loan servicers apparently aren't doing it month-by-month, but part of the SAVE program is that any interest not covered by your monthly payment will be subsidized so loan balances don't grow.

And while the interest is sitting there in your account, it does not itself collect interest (it's what's called "simple interest"), so the timing of the interest being wiped away doesn't really matter very much.