EXPLAINER: Student loan interest resumes Friday

6 News helps borrowers know what to expect and explains how this change will affect the economy.
Published: Aug. 31, 2023 at 11:05 PM CDT
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OMAHA, Neb. (WOWT) - For the first time since March 2020, interest will start accumulating on student loans Friday.

The first payment will be due Oct. 1.

It’s a confusing time for many people with student debt. 6 News is on your side trying to get some answers.

Under the federal SAVE Plan, you can have a lower or no monthly payment at all.

Starting in October, the U.S. Department of Education will implement a 12-month “on-ramp” to repayment, in which you would be shielded from certain financial consequences for missed payments.

Meanwhile, Jack A. MacAllister regional economics chair and Creighton University professor Dr. Ernie Goss said the years-long repayment freeze has undermined the student loan program’s credibility.

“It sends a bad message out there for all taxpayers, all borrowers, and for that matter, the future borrowers,” Goss said.

He thinks the loan interest freeze should have only been offered to certain borrowers who couldn’t afford payments at the time, and that the freeze period shouldn’t have been extended.

“You feel like, ‘Well, I’m not going to pay it. It’ll be resolved when other individuals are elected to office. The politicians will eventually settle it, and I’ll begin to repay once they settle it.’”

“Will the Congress, will the administration wish to fund that program going forward?”

Now that many borrowers will go back to making monthly payments, Goss said that will decrease how much money they’ll spend on products and services, which will slow economic growth—but only initially.

“In the end, we will see faster growth because they—after paying back of the loans—they will enjoy higher income,” he said. “Then they’ll pay higher taxes, and it works to incentivize and give higher growth going forward.”

On another note, Goss also said businesses having their Paycheck Protection Program (PPP) loans forgiven during the pandemic also undermined the viability of loan programs.