Coronavirus Student Loan Interest Waiver: What It Means for You

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Amid the coronavirus outbreak, the government is moving toward temporarily cutting federal student loan interest rates to zero. But offering a student loan interest waiver is different from suspending payment on those loans altogether.

Here’s what you need to know about the latest plans coming out of Washington, what it means for you and — perhaps more importantly — what you can do now, even if the student loan interest waiver doesn’t pan out.

What does the student loan interest waiver mean?
Which loans would qualify for the waiver?
When would the student loan interest waiver take effect?
Can the government really suspend student loan interest?
What about suspending all payments?
Coronavirus and federal loans: What can you do now?
I have private student loans — What should I do?

What does the student loan interest waiver mean?

President Donald Trump said March 13 the government will temporarily reduce federal student loan interest rates to zero — an unprecedented move that could help millions of borrowers at least marginally, though enacting it could need support from Congress.

“To help our students and their families, I’ve waived interest on all student loans held by federal government agencies and that will be until further notice,” news reports quoted the president as saying at an afternoon gathering to declare COVID-19 a national emergency. “That’s a big thing for a lot of students that are left in the middle right now. Many of those schools have been closed.”

The mass interest waiver was initially misunderstood: It would not lower borrowers’ monthly payment amounts. Instead, payments would go entirely toward the principal, potentially pushing borrowers toward the finish line of their debt, as the Department of Education told The New York Times in a report Saturday. But borrowers would still need to make their monthly payments as usual.

While interest would not accrue on federal loan balances during the waiver period, it remained unclear whether that withheld interest would be tacked onto balances later on.

Which loans would qualify for the waiver?

Other details provided by the education department following the announcement were scant. In a tweet March 13, Politico reporter Michael Stratford quoted the department as saying the relief would apply to any loan held by the federal government that’s in repayment or forbearance. This includes Direct loans, FFELs and Perkins loans held by the government.

The Washington Post reported that borrowers who haven’t yet entered repayment would also be eligible for the waiver. However, no information was immediately available on what would happen with loans that are delinquent or in default.

Unfortunately, private-loan holders would not be covered under the administration’s initiative. Likewise, if you have a FFEL or Perkins loan held by a private lender or your school, however, your loans would not qualify for the interest waiver. See below for what struggling private-loan borrowers can do.

When would the student loan interest waiver take effect?

The Education Department also said that the rate reduction would be automatically applied to borrowers’ accounts. They said this would be “operationalized” within a week and then backdated to March 13.

The companies that service federal student loans had few immediate details. For instance, Navient said they were working with the federal government and “once we have more information to share, we’ll update this page on our website.”

In addition, the Federal Student Aid website’s announcements page made no mention of the student loan interest waiver, at least as of Tuesday.

Can the government really suspend student loan interest?

Student loan expert Mark Kantrowitz wrote in Forbes that the Higher Education Act of 1965 requires the president to get approval from Congress to carry out his proposal.

That said, both Republicans and Democrats appear interested in providing some form of student loan relief as the coronavirus threatens to do heavy damage to the economy. In fact, there has been talk of suspending student loan payments completely, rather than just the interest.

What about suspending all payments?

Some congressional Democrats had called for the White House to pause all federal student loan payments, both principal and interest, a move that Treasury Secretary Steven Mnuchin had said was up for consideration before the president made his March 13 announcement.

Along those lines, Senate Democrats have proposed a six-month forbearance as part of Congress’ COVID-19 relief package, and they put out a separate bill to suspend payments altogether.

Still, the likelihood of payment suspension would depend on both major political parties supporting the move.

Coronavirus and federal loans: What can you do now?

If you’re a federal student loan borrower and you need more relief than just a suspension of your interest charges, consider enrolling in income-driven repayment (IDR) or talking to loan servicers about other options. An IDR can cut your monthly payments significantly.

On the other hand, an interest-free period might not be the best time to request a forbearance from your loan servicer and pause payments completely. This is because the interest waiver means 100% of your payment will go toward your principal, allowing you to reach the finish line faster if you can afford to continue making payments now.

Any amount you can afford to pay, whether in your current plan or through an IDR, is worth submitting. After all, staying current on your loans will also ensure you avoid delinquency or, worse, default.

I have private student loans — What should I do?

As noted above, the planned student loan interest waiver won’t apply to private student loans you might have borrowed from banks, credit unions or online lenders.

If you have private loans, you could look into refinancing your debt, especially now that the Federal Reserve has cut its benchmark interest rate target to zero. LendingTree analysts said the recent cut could see refinancing rates fall further, and offers are already quite low on a historical basis, as you can see in looking at our list of preferred lenders.

Note, however, that getting the lowest advertised rates requires a strong credit score (or a cosigner with a strong credit score), and you should be careful about refinancing federal loans (rather than private ones) as you would forfeit some government protections.

If refinancing isn’t right for you, talk to your lender or loan servicer about your options. Many companies award an economic hardship forbearance on a case-by-case basis, meaning that you could qualify for a pause on your payments if COVID-19 has harmed your finances. Just remember that interest will continue to accrue on your balance while you take a break from repayment.

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