Updated: March 14, 2020 at 9:45 pm PST
On Friday, March 13, President Trump worked to provide some fiscal relief for the 44 million Americans who’ve borrowed Federal money to attend college, including the thousands of college students attending colleges where normal university operations were suspended this past week:
“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,” Trump said during a Rose Garden address where he declared 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.”Politico, March 13, 2020
Student loan borrowers will still need to make repayments; however, retroactive to Friday, March 13, no interest will accrue on any loans, both for those repaying loans and students still attending college:
A Department of Education spokesperson said that under the new policy, any borrower with a federal loan — including those in income-driven repayment and in forbearance — will have interest waived until the temporary policy ends.
The spokesperson added that the department does not know exactly how long the policy will be in effect.The interest will be waived automatically, the spokesperson said, and the policy will be put into effect over approximately the next week, retroactive back to Friday’s announcement by the President.CNN, March 13, 2020
If possible, student loan borrowers can take advantage of the interest waiver to pay down their principal balance, or the original amount borrowed. Since interest compounds on any student loan balance, the less the principal balance, the less overall a borrower will need to repay.
“It may be the time to aggressively attack your student loans,” she says. “If you aren’t being charged interest, this is an opportunity to make an impact on your student loan balance.”Elaine Rubin, Edvisors, CNBC, March 13, 2020
Student loan borrowers should contact their loan servicing company or the Financial Aid Offices at their university for more details:
The new policy will be implemented by the Education Department, which was scrambling on Friday to issue instructions and guidance to the companies it hires to manage the monthly payments of borrowers. A department official said that the interest waiver would be automatically applied to all borrowers, effective Friday, even though it may take some another week to fully “operationalize” the policy.Politico, March 13, 2020
Despite the relief for some, some borrowers may be confused how, or if, President Trump’s decision applies to them:
Most important: Will the waived interest be tacked on to the principal once the waiver period ends? I asked about this repeatedly, but the Department of Education did not offer an answer. This is crucial: If the waived interest is added back later — a process known as capitalization of unpaid interest — it could be costly for borrowers.
Are federal PLUS loans, which graduate students and parents use, part of the waiver? There is no reason they wouldn’t be, but I could not get confirmation on this.Trump’s Student Loan Interest Waiver Isn’t What You May Think, The New York Times, March 14, 2020
However, for the 20% of adult student loan borrowers who are deliquent on their payments, as reported in the most recent Federal Reserve Board statistics, President Trump’s gesture may not further impact their current fiscal hardship.
For the 22% of all student loan borrowers who are still in college, according to the Federal Reserve Board, President Trump’s announcement may bring some relief going forward. Yet, in the uncertainty of when their college may resume a more normal function going forward, as well as what the “normalcy” may look has yet to be determined.