Interest rates on student loans can be high — between 4% and 8%. For many borrowers in income-driven repayment plans, that can mean the amount they owe continues to grow, even when they’re making payments.
Take this example from Betsy Mayotte at the nonprofit Institute of Student Loan Advisors: “Let’s say you have a borrower that’s accruing $100 a month in interest, and their calculated income-driven plan amount is $50.”
They’re paying $50 a month toward their loan but also accruing $50 a month in interest, which is added to the principal. “But under this plan, the government would forgive that extra $50,” Mayotte said.