Debate: Is Restarting Student Loan Interest Accumulation a Good Idea?

President Joe Biden has released a new plan to assist student borrowers as the end of the student loan repayment freeze approaches. As part of the Biden administration’s “on-ramp” program, borrowers must resume repayments on their student loan debt in October.

However, borrowers unable to pay will not have those defaults reported to credit agencies for 12 months, until October 2024. While the 12-month reprieve is designed to protect student borrowers from damages to their credit ratings, interest will once again begin to accrue on student loans in September and will continue to accrue during this 12-month “on-ramp” period.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about Biden’s plan to restart student loan interest accumulation before the repayment freeze ends.

Below is a summary of the debate that ensued between the two professors.

Their Votes:

Bloink

Byrnes

Their Reasons:

Byrnes: Restarting interest accumulation before payment obligations technically restart (and before borrowers will face consequences for failure to pay) is a part of the ramp-up to return to normalization. Student borrowers have received an unprecedented level of relief for the past three years. The pandemic is largely in the rearview mirror by this point. These student borrowers have had ample time to find employment if they lost their employment during the pandemic, so there’s no reason to continue providing this level of government assistance.

Bloink: It makes very little sense that the Biden administration would opt to restart interest accumulation while payment obligations remain frozen for another month and non-payment will largely be ignored for the next year. We’re providing relief in not reporting delinquent borrowers to credit agencies for at least another 12 months. Without corresponding relief when it comes to interest accumulation, we’re making a bad situation worse as borrowers may think they can continue to delay payment, yet will be incurring interest charges during that time.