Note: The $2 trillion Senate stimulus bill is likely going to supersede the Trump interest freeze within the next several days.
President Trump declared Friday, March 13 that he’s waived “interest on all student loans held by federal government agencies, […] until further notice.“
On March 20, Trump also announced that student loan payments would be suspended for 60 days for borrowers who opt to pause their payments. Borrowers must contact their student loan servicer to put their loans into a 60-day forbearance with no payments as this is not done automatically.
Here’s a few other useful articles we’ve put together for you to get the most student loan help during COVID-19:
- We recommend recalculating your income driven payment instead of forbearance
- Coronavirus could substantially lower borrowing costs for student loans next year
- See how the economic effects of the pandemic has affected borrowers like you
- Here’s the most and least financially affected jobs of the outbreak
According to the Dept. of Ed, any borrower currently in a repayment plan or forbearance would not accrue any interest until some undetermined point in the future.
Also, students currently enrolled in school would also not accrue interest.
Here’s what we know so far, and what I think it means for your student loans.
Interest is Waived, Payments Suspended
President Trump announced on March 20 that student loan interest and payments for federal student loans can be paused for 60 days without penalty.
Education Secretary Betsy DeVos announced that borrowers would automatically have interest rates on federal student loans updated to 0% for at least this 60-day period.
As far as payments, the 60-day period for suspending student loan payments is optional and borrowers will not be automatically enrolled into this forbearance. Borrowers who want to pause payments by putting their student loans into 60-day forbearance must contact their servicers directly. This can be done online or by phone.
Loans placed into this forbearance will not accrue interest during this period.
Many Federal Student Loans Are Not Included in This Interest Freeze
Only Direct Student Loans, federally held FFEL, and federally held Perkins Loans will get this benefit.
That means if you have these kinds of loans, you would qualify:
- Direct Stafford Subsidized
- Direct Stafford Unsubsidized
- Direct Grad PLUS
- Direct Parent PLUS
- Federally Held FFEL
- Federally Held Perkins
Most FFEL loans and Perkins Loans would not receive this interest subsidy because most of this debt is held by private banks and universities.
Private student loans would not receive a subsidy either.
The FFEL and Perkins programs no longer exist for new borrowers, so you would have to have borrowed before 2010 to have an FFEL loan. The Perkins loans tend to be very small and they haven’t been issued for several years.
So this interest freeze affects the large majority of student loan borrowers with federal student loans.
Interest Will Not Capitalize
During natural disaster forbearance, interest does not capitalize when you exit the forbearance at the end of the 90 day window.
However, interest does continue to accrue during a disaster forbearance. That will be different here as the student loan interest is covered.
In practice though, student loan servicers mistakenly capitalize interest all the time. I would be shocked if we don’t see thousands of errors that capitalize interest if borrowers signed up for the wrong kind of discretionary forbearance offered to them by their servicer.
For that reason, our recommendation is that you continue making payments unless you’re forced to ask for forbearance due to economic hardship from Coronavirus.
Students Will Not Accrue Interest Either
President Trump essentially turned students’ loans into temporary Stafford Subsidized loans, which accrue no interest during periods of deferment.
It wasn’t clear if the interest freeze included both students and borrowers in repayment. According to the Washington Post, borrowers currently enrolled in school also receive this interest subsidy.
It Could Take Months for Student Loan Servicers to Implement This
When the Revised Pay As You Earn (REPAYE) program came out in 2015 / 2016, it took servicers months to figure out how they would process the new interest subsidies the repayment plan offered.
This student loan relief from Coronavirus is supposed to happen now.
But there’s a low chance the servicers will be able to get it in place correctly anytime soon. When and if they do, they might have to remove student loan interest from borrower accounts.
Department of Education officials made this process sound easy, claiming “that the interest subsidy would be applied from Friday but that it will be implemented sometime next week.” That’s an extremely optimistic assessment.
The interest is not the problem. That does not help a family who needs to hold onto cash instead of watching it go out the door to their student loans.
There are already numerous programs to help lower payments during times of financial distress. For example, you can already apply for up to 3 years of forbearance on federal loans.
You can also recalculate your income driven repayment amount if your income fell for federal student loans.
For private student loans, you can often apply for 3 months of forbearance if you lose your job.
Borrowers Might Be Offered Something Similar to National Disaster Student Loan Forbearance
To show how bad the servicers are, whenever Washington declares a national disaster area, some servicers will place borrowers into an automatic forbearance even when they don’t ask for it.
The interest does not capitalize, which is the one good part. You get 90 days of paused payments.
If you use more forbearance than that, then you might have the interest capitalize.
When borrowers get automatically signed up for it, they don’t get any credit for student loan forgiveness payments.
If a borrower lives in a county with a disaster declaration, they get forced into paused payments regardless of their preferences by some servicers.
If you did not get affected by the disaster, that doesn’t help you.
If you did get affected, at least your payments get paused and you don’t have your interest capitalize.
Having Student Loan Payments Continue is Good for Borrowers Using PAYE and REPAYE
Making forbearance voluntary instead of mandatory certainly helps borrowers pursuing student loan forgiveness.
If you continue making your payments, the money will be applied to principal (or outstanding accrued interest) and you continue your countdown towards 10 years for PSLF or 20 to 25 for IDR forgiveness.
Student loan servicing companies have large numbers of employees in concentrated geographic areas in huge corporate office parks.
I would imagine many of their employees have to work from home right now or will soon.
Who is going to pick up the phones when millions of borrowers call to see if their payments or interest changed?
What will the poor phone reps tell people?
This is going to create a massive additional load on servicers that already do not do their jobs very well. I would not be surprised if borrowers see a huge drop in service levels because of this change while the servicers scramble to figure this out.
In my conversation with Ron Lieber of the New York Times, Ron raised additional questions about the possibility of workers at loan servicers processing this rule change. This makes me wonder if this rule will get implemented in the next few months, not one week as the Dept of Education suggests.
Will Borrowers Get Interest Refunded to Them Later?
Currently, PSLF borrowers who have overpaid on their 10 years of payments receive refunds for the months that they overpaid.
I’ve personally heard stories of borrowers getting over a dozen checks in the mail months after their PSLF application got approved to reflect that they made too many payments.
In theory, you would also get student loan interest refunded to you if the servicers can’t cancel the interest in their computer systems for many weeks.
But imagine changing the interest calculations for millions of student loan borrowers in incredibly old systems as a student loan servicer?
Now imagine trying to do it with most of your people working from home.
Borrowers Will Probably Have a Hard Time Monitoring Their Subsidy
While borrowers should expect student loan interest to be refunded if the servicers mistakenly add it to your balance, it will be an absolute nightmare as a borrower ensuring this.
When the student loan interest starts back up again, your loan payoff document could be completely wrong.
I also expect servicers will not document this subsidy for anyone to see on official statements or online.
If you pay off your loan or refinance it after interest starts again, will the servicer have an incentive to track you down for the excess interest you paid?
Get ready for hours on the phone with FedLoan Servicing or whoever your servicer is.
That said, the Department of Education claims interest will be paused as of today, with “operational logistics to be worked out later.”
How the Trump Student Loan Waiver Affects Student Loan Refinancing
I got some text messages from some friends who were about to refinance their federal student loans to ultra low rates like 3%, until they saw Trump’s press conference.
They were excited about a “0% interest rate until further notice.”
First of all, I wouldn’t be so sure that the government will get it applied properly.
If they do, clearly you would not want to refinance federal student loans right now, with one exception.
If you have a very low rate offered to you by a private lender, that rate might be much higher in a few months.
Interest rates could increase, and credit risk could increase too.
Either one of those things might end up costing you the ability to refinance at a lower rate now.
An Example of How This Waiver Might Function
Imagine you have $50,000 of federal student loans at a 6%.
Your interest charge is roughly $3,000 per year, or $250 per month.
If you refinanced to a 10 year fixed rate at 4%, your annual interest would be $2,000 a year, or about $166 a month.
At 0%, no interest would accrue.
What if you waited to refinance 6 months from now, but the 10 year fixed rate was now 5% instead of 4% for student loan refinancing?
Over 10 years, the difference in getting a 1% higher interest rate is about $3,000 on $50,000 of principal.
With 6 months of 0 interest payments, you’d save about $1,500 on a $50,000 student loan.
If the interest freeze only lasted for a couple months, then you’d only save $500 (two months of interest costs).
If the student loan interest freeze lasted for a year, you’d save $3,000 and clearly would be better off waiting, even if you got a higher interest rate.
Also, if you fight your loan servicer for hours trying to get them to apply this subsidy correctly, you might be worse off if you’ve wasted huge amounts of time depending on the value of your hourly wage and tolerance for pain.
I’d lean towards not refinancing any federal student loans right now, but some borrowers might still want to consider it if you think:
- The student loan interest freeze will be poorly implemented
- The freeze will be short in length (a couple months vs a year)
- That interest rates for student loan refinancing will rise significantly from current levels
The Waiver Does Not Apply to Private Student Loans
Definitely refinance your private student loans that already exist.
These loans receive no interest subsidy, so you want to reduce your student loan interest anytime you can find a better deal.
I would imagine the majority of student loan refinancing until this period ends will be for borrowers with existing private loans who want to cut their interest rate another 1% or 2%.
That’s happening for many borrowers right now because refinancing rates are close to record lows.
What Does The Trump Student Loan Interest Pause Mean For Your Student Loan Plan?
Realistically, very little.
If you need to pay your loans off, then you still want to do that. Any extra payments you make during this time would first go to any existing accrued interest you have. Once that’s gone, payments would all go to principal.
You might just wait on refinancing federal loans until there’s more clarity.
Beef up your emergency fund, increase your retirement savings and increase contributions to your brokerage account with excess cash during this period of economic uncertainty.
If you’re pursuing 20 to 25-year income-driven forgiveness or 10-year PSLF forgiveness, then an interest freeze does not affect you at all.
Most of your loans get forgiven anyway. The forgiven balance might just be a bit smaller, so continue making payments as nothing happened.
The Trump student loan interest waiver was clearly not thought out very well. It seems like the administration is trying to throw everything at the wall to see what sticks without much thought to the logistics.
Stick to your plan.
Expect a Return to Normal, We Just Don’t Know When
If you locked in record low interest rates on your student loans recently from refinancing, don’t despair.
This interest pause is temporary.
If you need to use forgiveness based on the math of your student loan repayment, that didn’t change either just because of this change.
We will return to normal, and federal student loan interest will start again soon. I don’t know if it will be in a month, 6 months, a year, or more.
I’ll also believe this interest freeze when I actually see it implemented. From my experience advising thousands of student loan borrowers, expect that the servicers will mess this up very badly.
I’m not a healthcare professional, but I know that the US economy and stock market has weathered far worse than Coronavirus.
Your savings rate matters the most right now.
Prepare for your own personal recession. Build up your cash savings to 1 year’s worth of expenses. Pay off all your consumer debt next.
Then consider increasing your retirement and taxable account investment contributions once you’re in a place of financial security.
If you are incredibly confused or anxious about your student loans during a tumultuous time, our team of professionals is happy to help.
tWhat do you think about Trump pausing federal student loan interest? Share your thoughts in the comments.
I was waiting for your post! Thank you Travis (and company) for your updates. I really appreciate them!!
Thank you for reading them Linda!
Hello. My estranged child defaulted on a student loan. I accept full responsibility, as I was the co-signer. I have been trying to get into a rehab (National Recoveries). My wages are going to be garnished. My tax refund will be seized. How will Trumps suspension of student loan interest affect me? The stress caused by this rehabilitation process is awful, my job as a critical care nurse facing this virus is compounding my stress. Thank you for any guidance.
Hopefully they’ll pause collection efforts soon, but we don’t know yet. I’d make every effort to get the loan on an extended or income driven repayment plan and out of default. Worst case scenario you could consolidate it at studentaid.gov
I’m in the home stretch from paying off one of my Direct loans, and have about 4 months left assuming I make my regular payments on that loan. The overall savings with this waiver would be about $25 (assuming it’s retroactive to the March 13 press conference). So it’s possible I could pay that loan off with regular payments before my loan servicer figures out how to deal with this waiver. Is it possible that I would get a refund of the $25 in interest payments? Or alternatively, if they figure it out sooner, could that loan “resurrect” and I’d owe that $25 once the waiver ended, even if I’d paid off the loan during this time period?
It’s more likely you’d get a $25 refund at some point, but honestly I’m not so sure they’ll get this implemented for a couple months.
Hello, I’m a student at a med school currently and have unsubsidized loans. How does this effect me? Is my Interest going to stop also while I’m in school? Thank you!
Great question! We’re still waiting on word for what happens with current students.
What happens if your REPAYE payments only cover interest and do not cover any principal?
Then possibly those payments would cover principal for a few months, but it’s very unclear right now
Guess I’m confused as to whether the cancelled interest will be that included in the month payment or the interest accruing currently? I’m on REPAYE and just over 5 years into PSLF. It won’t help me any if it reduces current interest but would if it reduces the interest part of my current payment, vs. principal.
I don’t think it will help you any as a PSLF borrower
Hey Travis,
Thanks so much for this article. I just consolidated all of my loans and got approved for repaye. My rate is at 5.5% after consolidation. My first payment is next month. Since I just consolidated is there any benefit to refinance with the currently low interest rate? I also just applied for pslf employer certification which should be approved any day. Based on your comments, it sounds like the 0% interest won’t really help me much at this point since I just consolidated, correct? Thanks so much for your help.
Yeah this isnt gonna help you much, but you should stick w PSLF and not refinance
Oh okay so you can either refinance OR be on pslf, not both?
Correct. Once you refinance to a private loan, you cannot receive PSLF
Oh okay thanks so much Travis! Very helpful
I’m a bit confused (though it seems like everyone is confused) how this would benefit anyone on an IBR plan like REPAYE in the short-term. Since payment amount is tied to income, wouldn’t this interest pause not manifest in saved dollars until the forgiveness through a slightly reduced tax bomb? Or am I misunderstanding this?
Right IDR borrowers pursuing forgiveness dont get a big benefit out of this
Thank you so much for breaking this down!
I have to recertify my student loans before 4/28/20. Will picking a new income driven repayment plan affect me?
Also, I’m understanding that I should ensure my monthly interest is met every month AND I should also send a direct check to my servicer specifying the amount paid should be applied to principle.
Will this situation negatively impact any of that?
Dont need to send a direct check. Just sign up as normal and any excess payments get applied to your principal
Hi Travis, thanks for the update and information. For those of us pursuing PSLF (or any forgiveness for that matter) what should we be on the look out for or careful around right now? Are there any things our services could do intentionally or unintentionally that could jeopardize our forgiveness or progress without our direct consent? Should we be checking our accounts regularly for irregularities or changes that we didn’t authorize? I’m just always wary when anything changes around the PSLF as there is this lingering anxiety about being denied for any number of reasons I could have prevented. Thanks!
The only thing would be if they put you into an involuntary natural disaster forbearance. That looks unlikely at least right now
You mention IDR borrowers won’t really benefit from this? I assume you are saying that simply bc the interest that will be freezing for us isn’t as substantial as interest for someone on a 10yr repayment plan. Is that accurate? I’m currently on PAYE and have a minimal monthly payment that goes 100% towards interest, thus with this freeze, I’ll be saving that little bit in interest. Also, as mentioned a few comments above, assuming the payment is required to continue, one would assume that payment would now go towards the principal, I assume? Another scenario; if news comes out that they freeze payments as well, would you recommend continuing to pay the normal amount or not paying anything if we aren’t required?
PS. Thanks for the information. Stay safe
If they freeze payments I’d only do it if the credit for forgiveness still accumulated during forbearance. It doesnt help IDR borrowers much bc payments stay the same and the forgiven balance you have to pay taxes on, not pay off directly, so I guess there’s a benefit but it’s a small one.
For those on IDR plans with Fedloan, there is great news:
https://myfedloan.org/borrowers/covid/
All borrowers will automatically be placed on an administrative forbearance which will temporarily suspend monthly payments, from March 13, 2020, through Sept. 30, 2020.
Borrowers currently on an IDR plan will have suspended payments count toward IDR forgiveness (same for PSLF).
I’m on REPAYE … so basically this doesn’t benefit me at all?
Not if you plan to receive forgiveness, but if you plan to eventually pay it back it does help. Instead of a 50% subsidy on unpaid accruing interest, 100% is subsidized.
Per a news article, “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.”
Also wondering if this applies to current students! Thank you for this breakdown.
I believe it will Brooks. Currently trying to figure that out.
Travis, I was excited to see this in my inbox today! Thank you for breaking it down.
Quick clarification question: with this 0% on interest declared, does that mean if I decide to pay off a chunk of my federal loans now, say $10K, would the full amount go towards the principle? Please clarify. If that’s the case, would it be smart to do so after aligning 1 year emergency fund and later on refinancing if rates stay as low as they currently are?
Thank you in advance,
K
I would prioritize getting the 1 year emergency fund first, but yes if Trump’s statement is accurate, it would be going towards the principal. One caveat, you might have to pay off accrued interest first.
Travis thanks for all you do! Quick question, I recently refinanced my federal loans with Earnest, went from about 6.8% to 4.9%. Now I am seeing this info come out about the president suspending interest and who knows what else may come. Apparently, I have until midnight on March 17th to cancel with Earnest. Do you think I should consider doing this to see how everything plays out? Thanks!!
I think it depends entirely on how long you think this lasts. If it’s a couple months, then I wouldn’t cancel it. If you think this lasts until the election or after that, then you might cancel it.
If I just started to refinance the day before Trump released this is there any chance or reason I should try to reverse this loan before finalized? I have Great Lakes parent plus loans at 7.9% and also Navient student loans at around 6.8% that were all combined and refinanced on SoFi for around 3.9% . The timing of this seems that it can’t be worse that I just refinanced it.
If you can reverse it I would yes. But its not awful if you cant
Thanks Travis for all your info! My husband is just getting out of rehabilitation and we’ll be starting a repayment plan next week (probably IDR). Will all the confusion with implementing this new waiver make the PSLF process that much more difficult to track and keep up with? We’re planning on sending in the employment certification soon and I’m just wondering if you think their response will take longer than normal.
Thanks again for everything! I’ve learned so much from listening to your podcast and reading you blog.
Just keep doing what you normally do and it should work automatically
Dental offices are closing for at least 3 weeks due to COVID-19. Can dentists request an unemployment deferment for federal student loans? Any downside to pursuing this route?
Don’t go unemployment deferment. Recalculate your IDR payment on studentaid.gov.
Is there a downside to going the unemployment deferment route? I ask because our time of shutdown is unknown at this point. Reflect poorly on credit? Not sure I want to allot significant portion of savings toward student loans if not generating any income due to not seeing any patients.
Did a bit more reading and now see the benefit of recalculating IDR payment. Thank you!!
If you tell your servicer you make ZERO dollars a year now. They will recalculate your payment to ZERO dollars a month AND each “payment” counts towards forgiveness.
Correct
Am I understanding this correctly – if you have consolidated loans, they are included in the (frozen) 0% interest right now, or they will continue to accrue interest?
I have a subsidized and unsub with FedLoanServicing.
Loan Program: DIRECT UNSUB CONSOLIDATION LN
Owner: U.S. DEPT OF ED
Guarantor: FEDERAL
I am on PAYE and was pursuing forgiveness but earlier this year we decided we are going to try to pay it off so obviously very important to know if interest is accruing or not. Love your website, thanks for all that you do!
Yes it would be included
I just refinanced my parent plus loans worth over 70,000 with common bond/firstmark for interest rates of 4.6% and 4.3% should I cancel this refinance and leave it in the federal or will private lenders have to cancel interest as well??
Right now they will not cancel the interest, but we haven’t seen more details come out of the federal government yet.
I have a parent plus loan. My son is in his second semester of a 4 semester masters program. Because he is back in school, I now just pay interest with the principle frozen until at sometime when he is no longer in school. I pay 520 per month of interest, will this be paused?
According to Trump yes, but only 38% of our readers believe him.
My student loans are currently in default, and they garnished my income tax last year 2019. The Dept of Education says I am not eligible to consolidate and I cannot seem to get ahold of debt collection agency out of Maryland they now have me with. I’m not sure what to do to stop the garnishment… I’m a single mother of 4 and I just got laid off due to Covid-19. Does Trumps announcement mean they are not going to garnish income taxes? Because that would be a huge blessing to me personally as I have not filed taxes yet. And do you have any suggestions on how to get out of default? Should I refinance and if so with who???
Help. My child defaulted on a student loan. Will my income tax be seized during the corona virus?
Only if the loan is in your name
Is My FFELP Sallie Mae PLUS loan eligible for interest waiver?
No it’s not
I thought the comment: Trump’s Plan isn’t well thought out and he’s throwing everything at the wall to see what’ll stick,
to be cheap shot. It’s easy in a young person’s world to think everyone else has the same world. When one is responsible for other’s it gets a bit more complicated in the adult world. Think what it must be like with 330 million different people with different needs all staring at you for ‘the’ answer and hoping it helps them in their local world. Try to be a team player and not a mouthpiece for the Liberal Media on a board where people’s money is at stake. Thank you for your consideration.
So just an FYI, I talked with the Dept of Education treasury offset department this morning and they will be not be garnishing wages or income taxes and any that have been garnished will be refunded for the next 60 days!! I’m super stoked!!
WOW!!! That’s great news Emily!
Has anyone heard of the timeframe for this offset refund?
I am brand new to all this, so my questions may be really basic.
Planning to go into PSLF when I graduate. What should I be doing right now (forebearance or just graduate, consolidate, REPAYE)? And is there was mention of 100% interest subsidy, should I be looking into that?
Probably consolidate when you graduate but things are fluid right now.
Travis,
Regarding people currently enrolled in PSLF (I.e. I am about halfway through my 120 consecutive payments), would deferring for the 60 days jeopardize my ability To qualify for forgiveness upon completion?
Thank you
We’re telling ppl dont do anything right now
I just pulled open an email FedLoan sent my husband and their email says: “Payments satisfied during the administrative forbearance status will not count towards PSLF or IDR forgiveness.”
Which now gives me new questions… So am I correct in thinking they are saying these payments if we DO NOT forbear won’t count towards either forgiveness option?
FollowIng! I would like to pay my payment towards pslf but don’t want to if it won’t count. Is it only if we put our loans in forbearance or is it mandatory?
It seems like this will be mandatory based on Congress’s bill but PSLF will count
So I don’t exactly follow, we are being put on mandatory forbearance? But we’ll still get PSLF credit for those months even if we don’t pay?
When is this mandatory forbearance supposed to start? My monthly autopayment was withdrawn on March 21. If we are not going to get PSLF credit, there is no point in continuing to pay during this forbearance.
So for those of us continuing to make payments during this time, will they still count towards PSLF?
My ffel loan is currently in default with pioneer recovery. I am reading that we still will get our stimulus checks but my tax refund was offset. I also just read above that I should get that back is that true. And is it true my stimulus check will not be seized?
Yes you should contact Dept of Ed one commenter mentioned the number above
I am 22 years old and due to illness last year ( cavernous malformation; brain bleed) I was not able to attend school or work in 2019… Does that mean I wont be getting my stimulus check??
You should get it
Even if my parents claim me as a dependent, but I file my taxes as a single?
Even if my parents claimed me as a dependent??
Will I get a stimulus check if my parents claimed me as a dependent in 2018-2019?? But I was living on my own, and attending college In 2018-2019 (I graduated in May 2019)?
I’m not sure
Hey Travis,
I recently consolidated with Great Lakes in November and my monthly payment is $0 (new graduate) under PAYE. I checked today and my student loans are in Forbearance. I previously enrolled in auto-pay. Is there anything I should be doing as of right now? Should I stay in forbearance or call Great Lakes and asked to be taken off since I am planning to go for forgiveness.
You’re getting credit dont worry
Thank you so much for the information! I wanted some clarification on loan forgiveness. I’m currently 3 years into paying off my doctoral loans with PAYE, hoping to get forgiveness after 20 years. My payments are very low right now, so I didn’t WANT to go into forbearance and tack on 6 months at the end when my income is (hopefully) much higher.
But then I went to https://studentaid.gov/announcements-events/coronavirus and it says:
“NEW: If I’m currently in an income-driven repayment (IDR) plan, will my suspended payments count toward IDR forgiveness? Yes.”
If I’m reading this correctly, this means that the 6 months of forbearance WILL count towards forgiveness, even if we don’t make payments. Is that correct?
Yes, that’s right! These 6 months of suspended payments count toward the total amount of payments you need for forgiveness.
Thank you!