Opinion: Student debt crisis calls for interest-free loan solution

After more than three years of payment and interest pauses initially brought on by the COVID pandemic and following an intense political battle escalating all the way up to the
Supreme Court, anyone with a student loan is now on the hook to start paying interest on these loans with payments resuming on Oct. 1.

With the resumption of student loan interest, it is time that we seriously consider interest-free student loans as a viable solution to make education affordable and accessible to everyone. The cost of going to college has more than tripled over the last half a century and with interest rates as high as 7.5% on student loans, the price tag to get a college degree can easily double over the lifetime of a loan after compounding interest. Over time, paying off these loans can saddle an individual’s ability to buy a home, save for a child’s college education, plan for retirement, and other ways to generate wealth. This is especially true for historically marginalized and first-generation college students who are more likely to experience financial barriers getting to college and have had less access to opportunities that build wealth.

Access to education should not be a privilege and the decision to pursue a college degree should not saddle someone with a lifetime of debt. Moreover, the burden of taking on a huge loan without a plan to pay it back, and the potential of that loan doubling over a person’s lifetime should not be placed in the hands of someone just graduating from high school.

But there is a simple solution to keeping the cost of college within reach for everyone: interest-free student loans. An interest-free, no-fee loan option would provide affordable student loans that can be repaid without the burden of interest, allowing students to focus on their education, establish their careers and build wealth and opportunities without having to worry about implications of compounding interest. Student borrowers would pay back only the principal, in monthly installments, until the loan is repaid. This would significantly reduce the amount of debt that students accumulate, while also easing the financial burden on borrowers.

Interest-free lending works on a small scale in communities across the country already, and there are already models of success for it. The nonprofit interest-free lending organization that I lead here in Los Angeles, has been doing this successfully for almost 120 years. Thousands of college students have borrowed and repaid their loans successfully and our default rate is 1% compared to the national average that consistently hovered around 10% prior to COVID.

Adopting interest-free lending on a larger scale requires collaboration between government, financial institutions, philanthropy and the wider community. By leveraging public-private partnerships, we can establish dedicated funds to finance interest-free student loans, ensuring access to education is equitable, irrespective of socioeconomic status. Imagine what a large-scale interest-free lending program with trillions of lending dollars can do to shift the student debt crisis and help to educate the American people.

By adopting interest-free student loans nationwide, we can alleviate the burden of student debt and create opportunities for all young people aspiring to get a higher education to develop their talents, pursue their dreams, and contribute meaningfully to society.

Rachel Grose is the executive director of the Jewish Free Loan Association in Los Angeles, where she has worked to create equitable distribution of interest-free loans for 21 years.