Interest capitalization has haunted student loan borrowers for decades, causing balances to balloon. That could change with a new income-driven repayment plan.
It’s why loans
There are many great features of SAVE — some that were implemented this summer and others that begin July 1, 2024. But the one about interest capitalization in effect now is significant.Let’s start with the amount of income protected from payments: That benchmark will increase from 150 percent to 225 percent of the federal poverty guidelines.
For instance, in an example offered by the Education Department, if a borrower’s interest is $50 each month, but the person is only required to make a $30 payment, the remaining $20 in interest will not be charged.“This will allow them to focus on food, rent, and other basic needs instead of loan payments,” the department said in an explainer about the plan features.
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