The Federal government declared a national emergency and waived interest on all student loans held by federal government agencies until further notice. This means the gov’t will temporarily stop collecting interest on student loan payments. It is unknown how long the policy will be in effect.
Who qualifies for the waiver?
Any borrower with a federal loan qualifies for the waiver. This also includes those who are in income-driven repayment plans, forbearance and deferment. Loans by private, state and all other commercial lenders do not qualify. It must be a federal student loan. Contact your loan servicer for details of your loan.
How do I receive the waiver?
There’s nothing for the borrower to do. The interest will be waived automatically. The gov’t will began the waiver on the date of the President’s announcement, Friday, March 13, 2020. Since this is a recent announcement the Department of Education is still working out the details. In the meantime, we will keep you posted on any updates. Subscribe and you’ll receive the update right in your inbox including any future videos and posts on how to save for college.
How does the waiver work?
Unfortunately, your monthly loan payment amount will not change. However during the waiver, when a borrower makes a loan payment it will be applied to their principal loan amount only, not interest plus principal.
How does a borrower benefit from the waiver?
Since the gov’t will be covering the interest on the student loan, if a borrower were to pay down their loan during this time period, it will decrease the amount they owe much faster. This is because their payment is being applied to the principal, not split between interest and principal. In other words, when you pay interest, the money isn’t put towards the loan, it’s put into the lender’s pocket. When you pay towards the principal, your money is paying down your student loan.
On the flip side, let’s say that you are struggling financially because you’ve been laid off, your hours were cut at your job, or your business isn’t doing so well financially, the waiver will temporarily help you avoid paying interest should you need payment relief under a forbearance or deferment (only subsidized loans under a deferment do not pay interest). A forbearance and deferment allows a borrower to temporarily stop making monthly loan payments due to financial burdens and difficulties.
If you need to temporarily stop making your monthly loan payments, contact your loan servicer and request for a forbearance or deferment. They will advise which option you qualify for due to your financially circumstances.