Federal policymakers should offer no-interest student loans to prevent borrowers from paying more than their loans’ initial value, according to a Boston-based nonprofit group focused on college affordability and lobbying against student debt. The proposal, outlined in a report from the Hildreth Institute, seeks to address the growing number of borrowers who become trapped in loans with negative amortization — borrowers making payments on their loans that don’t cover accumulating interest, resulting in a loan balance that grows. Under Hildreth’s plan, the government would offset the costs of interest-free loans by investing the principal repayments in risk-free assets, like Federal Reserve bonds. This could generate a return that would cover administrative costs.
