President Trump’s Coronavirus Student Loan Interest Waiver Program
Here’s a slight bit of good news to everyone struggling to repay their student loan debt: because of the coronavirus pandemic, the Federal Government has agreed to waive the interest on all Federal student loans.
Make sure you’re paying close attention here though, because first, that only applies to FEDERAL student loans, and second, as I said, this is only going to help reduce the amount of interest your loans are accruing; it does NOT mean that you can simply stop making your monthly payments!
Please review this post, and my post answering Questions About the Coronavirus’s Impact on Student Loans, then feel free to ask any additional questions you may have in the Comments section below.
With that said, let’s go through the new Coronavirus student loan interest waiver program in detail.
What is a Waiver on Student Loan Interest?
Getting a waiver on student loan interest means that instead of having interest continue to accrue each month, as it normally does when you’re paying back a loan, you’ll instead be able to qualify for having that interest set to “0%”.
What this means is that your loan will stop accumulating additional debt, as long as you continue to make your monthly payments.
For most people with Federal student loans, getting to set your interest at 0% isn’t going to make THAT big of a difference, especially if the waiver period only lasts for a couple months, but the best thing about having interest set at 0% means that your payments made during this time period will be applied ENTIRELY to your principal debt.
I’ll explain that point in a second down below, so hang tight for those details, because that is where this program can become quite powerful for those of you who are NOT experiencing a cash flow disruption during the coronavirus pandemic.
Which Student Loans are Eligible for the Interest Waiver Program?
As I mentioned, only Federal student loans are eligible for President Trump’s student loan interest waiver program, and only certain types of Federal student loans may take advantage of the benefit.
Loans that are eligible for the waiver include:
- Direct PLUS Loans
- Direct Consolidation Loans
- Direct Unsubsidized Loans
- Direct Subsidized Loans
- Government-held Federal Family Education Loans (FFEL Loans)
- Government-held Perkins Loans
Commercial FFEL loans, College and University Perkins Loans and Private Student Loans are not eligible for this program.
To make it easier to understand which loans are covered, if you’ve got a Federal student loan that was issued in or after 2010, then your loan is part of the Direct Loan Program, and you can use the interest waiver.
How Much Interest Will Be Waived?
ALL interest will be waived for as long as the interest waiver period lasts. We don’t know how long that will be yet, but it could be for quite some time, depending on how long the pandemic lasts.
The nice thing about this waiver program is that it’s being put in place AUTOMATICALLY, so you don’t have to contact your student loan servicing company and request anything, you don’t have to fill out any paperwork, or apply to any assistance programs; it’s all happening behind the scenes!
This is very different from the normal student loan assistance programs on offer, so that’s a good thing and hopefully a sign that student debt may get easier to manage in the future.
Will Monthly Payments be Impacted?
Unfortunately, the waiver program won’t help reduce monthly payments.
But it WILL help with those monthly payments and your total outstanding debt, because under the waiver program 100% of your monthly payment is going to be applied to your loan principal, meaning that none of it is going to get directed toward interest (like usually happens with student loans, or any type of loan for that matter).
A quick note on that – this is only the case IF you don’t already have unpaid interest, fees or penalties. If you have unpaid interest, fees, or penalties, then at least a portion of your monthly payment will be directed towards them.
If you have no unpaid interest, fees or penalties, then your payments made under the waiver period are going to help you get out of student debt much, much faster than any of the other payments you make during the course of your loan.
And that means that if you’re able to make additional payments during this time period, it may be worth stacking them to ensure your principal is reduced even more rapidly.
I know that’s not helpful for anyone who’s having cash flow issues due to income-disruptions during the pandemic, but for those of you who are either fortunate enough to be sitting on a pile of money, or who are still earning steady income and have some to spare, you may want to try funneling that extra towards the monthly payments for the extra credit.
Can I Pause Payments if I’m Not Earning Anything Due to the Coronavirus?
Technically, you can pause your payments at any time, whether or not there’s a pandemic occuring.
But during the interest waiver period, there are fewer consequences to pausing your payments using a Federal Student Loan Deferment or Forbearance Program, since normally that would typically lead to interest accumulation (increasing your total outstanding debt during the period of time that the payments were paused).
Since interest is being set to 0% during the waiver period, you COULD start a deferment or forbearance and NOT be subject to seeing your interest accumulate.
Should I Use a Deferment or Forbearance?
If you can’t make your monthly payments because your income has been disrupted due to the coronavirus, or for any other reason, then yeah, it’s probably a good idea to use a deferment or forbearance to give you some breathing room so you don’t MISS payments, which could lead to Student Loan Delinquency or Default.
But just because you can qualify for a deferment or a forbearance doesn’t mean that you should; these should be saved for times that you absolutely need them because you simply cannot make your monthly payments.
If you can keep making those payments, but you do pause your loans, then you won’t be able to take advantage of the fact that your payments are being directed entirely towards principal, meaning, you’ll be missing out on interest-free money.
DON’T Use a Deferment or Forbearance if You’re Attempting to Get Forgiveness!
One quick caveat to the Deferment and Forbearance advice is that if you are aiming to get forgiveness via the Public Service Loan Forgiveness Program, or any other Federal Student Loan Forgiveness Program, then you won’t want to use a Deferment of Forbearance, since these programs will make it take longer to get that forgiveness benefit.
Why does that happen? Because PSLF offers forgiveness after you’ve made 10 years worth of payments (120 payments) in full, on-time, and according to your repayment schedule.
If you pause your loans with a Deferment or a Forbearance, then you won’t be making those qualifying monthly payments, and thus it’ll take longer to satisfy the conditions of PSLF, meaning you won’t get forgiveness at the 10 year mark.
If I’m Losing Income, Can I Qualify for Lower Payments?
Yes, but ONLY IF you are enrolled in one of the Income-Driven Repayment Plans (PAYE, REPAYE, IBR or ICR).
If you’re enrolled in one of these plans that base your monthly payments on your income, then your payments will go down – eventually – but the problem is that it can take a couple weeks or even several months, before you’re going to see any changes to monthly payments.
Here’s what you should do to streamline the process:
- Contact your loan servicer to alert them that your income has been interrupted/impacted by the coronavirus
- Find out their process for certifying your reduced income levels
- Do whatever it is that they say you need to do to prove your income has been reduced
Another thing to keep in mind is that if you have AVOIDED an IDR Repayment Plan because you didn’t want payments to go down so much that monthly interest would accumulate since you were paying so little, NOW IS THE TIME to sign up for one of these plans since interest rates are effectively set at 0%.
What’s that mean? It means that you may even be able to qualify for a $0 monthly payment under one of the IDR plans, WITH an interest rate that’s also set at 0%, meaning that you could pay ABSOLUTELY NOTHING each month as long as the interest waiver is in place, but still be getting full credit for those $0 monthly payments towards forgiveness program qualifications, ALL WITHOUT having interest accumulate on your loan!
Will the Interest Waiver Program Impact Future Taxes?
If you’re taking advantage of the Federal Student Loan Interest Tax Deduction Program (or aren’t yet, but planning to next year), then be aware that this interest waiver period COULD end up giving you a slightly higher IRS tax bill than normal.
How? Because since the Interest Tax Deduction Program let’s you deduct up to $2,500 in student loan interest from your taxable income, but the interest waiver makes your interest effectively $0, or less than $2,500 for the next tax year, then you won’t be able to deduct that amount from your income, and you’ll end up owing more taxes than usual.
This is truly a minor concern with everything else going on, but something I wanted to point out for those min/maxers who are attempting to take as much advantage of the waiver program as possible.
Help with Federal Student Loans
For those of you who are new to my site, please take a look at the other articles I’ve written that offer assistance with Federal Student Loans.
I’ve compiled over 100 different Guides over the last 10 years, giving advice on all sorts of topics regarding Federal debt, so you’re certain to find something useful by browsing through the following links.
To get Help with Federal Student Loans, check out my Guides on:
Federal Student Loan Relief Programs
- Federal Student Loan Forgiveness
- Federal Student Loan Bankruptcy
- Federal Student Loan Consolidation
- Federal Student Loan Delinquency & Default
- The Federal Student Loan Rehabilitation Program
- Federal Student Loan Wage Garnishment
- Federal Student Loan Deferment
- Federal Student Loan Forbearance
- Federal Student Loan Repayment Plans
Help With Private Student Loans
And if you’re got private debt, then you’ll want to take a look at my articles on getting Help with Private Student Loans, including:
Private Student Loan Relief
- Private Student Loan Forgiveness Programs
- Private Student Loan Consolidation
- Private Student Loan Bankruptcy
- Private Student Loan Defaults
You’re virtually guaranteed to find some form of assistance after browsing through these Guides.
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Disclaimer:Information obtained from Forget Student Loan Debt is for educational purposes only. You should consult a licensed financial professional before making any financial decisions. This site receives some compensation through affiliate relationships. This site is not endorsed or affiliated with the U.S. Department of Education.