Why Biden’s new SAVE student loan income-driven plan is a game changer
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Interest capitalization has haunted student loan borrowers for decades, causing balances to balloon. That could change with a new income-driven repayment plan.
Balances balloon when a borrower’s monthly loan payments do not cover the interest because it’s tacked onto the principal. Interest is then applied to the new, larger loan amount. This is how the debt grows over time and can make the monthly payment unmanageable.
But under a new income-driven repayment plan — the Saving on a Valuable Education (SAVE) Plan — borrowers won’t see their balances grow even if their payments don’t cover the interest they owe. This could be a game changer for folks who would otherwise be trapped in loan payments for decades.
Like other income-driven repayment plans, SAVE calculates monthly payments based on a borrower’s income and family size. It is now the most affordable repayment plan, according to the Education Department.
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