Leading think tank pushes Biden administration to forgive student loan interest

The Center for Responsible Lending (CRL), an influential nonprofit, has called on the Biden administration to cancel billions of dollars in unpaid interest on student loans.

In a letter last week, the consumer lobby group pressed the US Department of Education to waive unpaid interest on student loans, particularly in cases where debt is set to be forgiven under the government’s existing relief plans.

“The Department of Education can and should go further,” the letter stated.

“We suggest the proposals be amended to clarify that capitalized interest should be forgiven and the borrower should be placed in the position they would have been in but for the capitalized interest.”

The CRL was established with the backing of billionaire philanthropists Herbert and Marion Sandler in 2002.

It is part of the consumer finance-focused community development foundation Self-Help, which is headquartered in Durham, North Carolina.

“Ill-gotten gains”

In its letter of comment submitted last Tuesday, the think tank argued the Biden administration should completely forgive debt accrued from unpaid interest.

That applies to cases where borrowers are set to be covered by waivers under its incoming three-part student loan relief plan.

The proposals include forgiving loans of up to $20,000 or the amount by which the current outstanding balance on a borrower’s loan exceeds the balance owed upon entering repayment.

They are also set to waive the outstanding balance of loans taken out to pay for undergraduate education on or before July 1, 2005.

“We suggest the proposals be amended to clarify that capitalized interest should be forgiven and the borrower should be placed in the position they would have been in but for the capitalized interest," said the CRL.

“Ultimately, for the borrowers affected by these provisions, interest was capitalized by servicers when it was never specifically required by statute, resulting in balances that go above and beyond their starting point at repayment. We support these waivers and the administration’s effort to eliminate these ill-gotten gains.”

The administration has so far proposed providing $10,000 of relief to all borrowers who have experienced balance growth due to interest.

Other plans include providing interest relief to lower-income borrowers and to those enrolled in SAVE affordable repayment student loan plans, which were launched last year.

“Fruit of the poisoned tree”

The CRL views the market for student loans as having become “ripe with potential predation,” given that Americans now owe $1.7 trillion in student debt.

The nonprofit notes that those with low incomes and borrowers of color are among the most impacted by the crisis.

“Far too many borrowers of color not only pay more for an education that has less labor-market value, but also have less access to built-in relief mechanisms that minimize default and prevent debt escalation through existing interest capitalization policies,” said the CRL.

It cited research from Brookings that found as of 2023 nearly half of all Black graduates owed more on their federal undergraduate loans than they did at graduation, while only 17% of White graduates faced that challenge.

This indicates unpaid interest on student loans is a key factor driving racial disparities among borrowers.

The letter argued: “The fruit of the poison tree is a balance greater than the borrower owed when they started repayment. Calculations of the amount of waiver should take this into account.

“It is not an exaggeration to state that borrowers have been paying hundreds of dollars per month for 10 or 20 years yet owe more than when they started.”