Sec. 201. Ending interest capitalization for Federal Direct Loans
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Section 455 ( 20 U.S.C. 1087e ) is amended— in subsection (b)— in the subsection heading, by inserting after and Practices ; and Rate by adding at the end the following: Beginning on the effective date of the Affordable Loans for Any Student Act , interest on a loan made under this part shall accrue and be added to the balance of interest due on the loan, but shall not be capitalized. Beginning on the effective date of the Affordable Loans for Any Student Act , interest on loans made under this part for which payments of principal are not required during the in-school and grace periods or for which payments are deferred in accordance with sections 427(a)(2)(C) and 428(b)(1)(M) shall accrue and be added to the balance of interest due from the borrower when the loan enters repayment, but shall not be capitalized.
The Secretary shall adjust any forbearance notice required in accordance with section 428(a)(3)(A)(iii) to reflect the availability of the pause payment process pursuant to section 460B and the treatment of interest under such section. ; in subsection (e)(5)— by inserting (which, beginning after the effective date of the after Affordable Loans for Any Student Act , shall not be capitalized) accrued interest ; and by striking the second sentence; and in subsection (q)(2), by striking the second sentence and inserting the following:
Such interest shall be paid or shall accrue but not be capitalized in accordance with subsection (b)(11)(B). . Paragraph (3)(B) of section 493C(b) ( 20 U.S.C. 1098e(b)(3)(B) ) is amended to read as follows: beginning on the effective date of the Affordable Loans for Any Student Act , for an eligible loan issued under part D or not otherwise described in clause (ii), shall not be capitalized and shall be added to the balance of interest due for the loan; and for an eligible loan made, insured, or guaranteed under part B and held by a private lender, shall be added to the principal amount and capitalized at the time the borrower— ends the election to make income-based repayment under this subsection; or begins making payments of not less than the amount specified in paragraph (6)(A); .
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