Government Waives Federal Student Loan Interest Amid Pandemic
Here’s how the student loan interest waiver could affect your student debt
President Donald Trump declared a national state of emergency the new coronavirus pandemic on March 13. The U.S. president also announced a waiver of interest on all federal student loans.
“I’ve waived interest on all student loans held by federal government agencies, and that will be until further notice,” President Trump said.
A week later, on March 20, Education Secretary Betsy DeVos confirmed the waiver by issuing a press release with additional details about the announcement. In addition, the department told federal student loan servicers to grant forbearance (a temporary stop in payment) to anyone who requests it for at least 60 days from President Trump's initial announcement. Anyone who was 31 days or more past due on their student loans on March 13, 2020, will have their payments automatically suspended for the same 60-day period.
On March 25, the U.S. Senate passed a bill extending the initial interest waiver to offer a total of six months of 0% APR on federal student loans, as well as extend the coronavirus forbearance period for the same amount of time. We will update this story as the bill progresses.
Waiving payments could provide relief to student loan borrowers during a time of financial stress and hardship caused by the COVID-19 pandemic. In total, there are 42.8 million borrowers who collectively owe $1.51 trillion in federal student loans, as of the first quarter of 2020, and 35.3 million of those people have loans held by government agencies (more on that in a minute).
On the day of the announcement, The Balance reached out to four major federal student loan servicers (Navient, Nelnet, FedLoan, and Great Lakes) and the Department of Education. Only one servicer, Great Lakes Educational Services, responded to our requests for comment. As of this writing, none of the servicers had details on their websites about the student loan interest waiver, though some said information would be coming soon.
When we spoke with Brett Lindquist, chief marketing and sales officer at Great Lakes, he indicated that the servicer first learned of this change the same day President Trump announced it and was still waiting for further details from the Education Department.
“We are waiting for additional guidance from Federal Student Aid,” Lindquist said, referring to the office of the Education Department that manages federal student aid. “As soon as we’re able we’ll get our information on our website.”
Which Student Loans Qualify for Waived Interest?
President Trump did include an important detail in his announcement: he clarified that interest is waived on “student loans held by federal government agencies.” This includes all federal direct student loans and Stafford loans, which account for $1.25 trillion in federal student debt owed by 35.3 million borrowers, according to data from the Federal Student Aid Office.
It excludes private student loans, however, as these are owned by banks and other financial institutions. It also excludes $257.2 billion in FFEL loans and $5.9 billion in Perkins loans. (FFEL loans were made before July 1, 2006, and Perkins loans were disbursed through June 30, 2018.) These two loan types are administered by the Federal Student Aid Office but are not owned by the federal government.
You can find out which federal student loan servicer manages your loan by logging into the Federal Student Aid website.
When Will the Student Loan Interest Waiver Take Effect?
DeVos directed servicers to retroactively stop assessing interest on federal student loans starting March 13, according to the press release. For at least 60 days, loans held by federal loan servicers will have a 0% interest rate.
How Will the Student Loan Interest Waiver Work?
You won’t have to apply for this relief—it will be applied automatically to all outstanding loans owned by the federal government, according to the Education Department. However, federal student loan servicers still have not posted information about the waiver on their websites.
While payments have not been waived for most borrowers, all borrowers with federally held loans have the ability to request an "administrative forbearance" for at least 60 days. Normally, you must show financial hardship to qualify for forbearance. You must contact your student loan servicer to request the forbearance.
For those continuing to make payments, your payment amount will not change during the interest-waiver period. Instead, the entire payment amount will go toward your principal balance, meaning you will make more progress toward paying off your debt than you normally do.
How Will This Affect Your Student Loan Payments?
Federal student loan payments will become principal-only, but you'll still have to pay the amount you normally do. The good news: Paying more toward your principal balance can reduce the amount you pay over the life of your loan.
Federal student loan interest rates are set on an annual basis and have ranged from 3.4% to 8.5% over the last 14 years, depending on the type of loan and year in which it was borrowed.
Borrowers in some repayment programs, like income-based repayment, sometimes have monthly payments that do not cover the interest accruing on their outstanding balances. With the interest waiver, those borrowers will see their balances stop growing, as their payments will then be applied to the principal.
What About Student Loans In Deferment or Forbearance?
The student loan interest waiver will also benefit borrowers with federally held student loans in deferment or forbearance, because interest won’t accrue for as long as this waiver is effective.
Normally, unpaid interest still accrues during a forbearance or deferment and is added to the principal, or capitalized, once repayment resumes. As a result, borrowers often owe more after these periods of nonpayment than they did before.
Combined with deferment or forbearance, waiving student loan interest could provide significant relief to borrowers experiencing financial hardships caused by the COVID-19 pandemic.
What Happens When the Student Loan Interest Waiver Ends?
The Education Department did not address what happens after 60 days in its announcement, but presumably, the loans will resume accruing interest charges. Borrowers who requested the 60-day forbearance will need to resume making payments or apply for additional forbearance or deferment.
What Should Borrowers Do?
As far as the interest waiver goes, you don't need to do anything. Servicers are supposed to automatically reduce your rate until at least May 12. (Again, if you have an FFEL loan or Perkins loan, the waiver doesn't apply to those debts.)
If you can continue to make your student loan payments, it makes sense to do so. This is especially important if you're applying for a program like public service loan forgiveness (PSLF), which require a certain number of on-time payments.
If you want to take advantage of the 60-day forbearance, want to apply for a longer forbearance or deferment, or need to change your income-based repayment amount based on a change in your pay, reach out to your student loan servicer as soon as possible. A lot of people are calling their servicers right now, so try to remain patient, and keep notes of your phone calls in case you need to contact your servicer multiple times. Keep an eye on your account online, too.
Education Department. "Delivering on President Trump's Promise, Secretary DeVos Suspends Federal Student Loan Payments, Waives Interest During National Emergency." Accessed March 20, 2020.
Federal Student Aid Office. "Federal Student Aid Portfolio." Download "Federal Student Aid Portfolio Summary." Accessed March 20, 2020.
Federal Student Aid. "The Federal Perkins Loan Program Provided Money for College or Career School for Students With Financial Need." Accessed March 20, 2020.
Department of Education. "Federal Family Education Loan (FFEL) Program." Accessed March 20, 2020.