What to Know About President Trump’s Federal Student Loan Announcements
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On March 20, 2020, President Donald Trump announced that the U.S. government will be temporarily suspending payments on federal student loans. This comes after the president’s announcement last week that the government would be temporarily waiving interest payments on federal student loans .
U.S. Secretary of Education, Betsy DeVos, was quoted in a statement as saying the following:
“These are anxious times, particularly for students and families whose educations, careers, and lives have been disrupted. Right now, everyone should be focused on staying safe and healthy, not worrying about their student loan balance growing. I commend President Trump for his quick action on this issue, and I hope it provides meaningful help and peace of mind to those in need.”
The payment pause is for a minimum of 60 days, retroactively going back to March 13, 2020. More details will likely be provided as this story continues to unfold, including whether this pause will be extended past the initial 60-day timeframe.
Currently, here is what we know about the federal student loan interest waiver.
Temporary Interest Relief
Some key elements to note are that this form of relief:
• Is available to borrowers who are more than 31 days late on payments (as of March 13) or who may become more than 31 days delinquent
• has an interest waiver that will last at least 60 days
• applies to federal student loans, not private ones
In general, student loans of borrowers who are currently in a repayment plan for a federal student loan or in a forbearance plan would benefit from the interest waiver.
Note that the interest waiver is automatic while borrowers will need to contact their lenders online or by phone to have their loans paused (put into forbearance). If they do not contact their lender, then payments made would go 100% on the principal balance. It is believed that the interest waiver benefit would also be available for people currently enrolled in college.
Additional available information suggests that these benefits:
• will only apply to student loans “held by federal government agencies”; this wording may indicate that not all federal student loans will qualify—so, for example, this may mean that FFEL loans or federally guaranteed Perkins loans that were granted before July 1, 2010 may not be included
• will likely also be applied to federal student loans where borrowers are on an income-driven repayment plan, such as IBR, PAYE, REPAYE, and ICR, as well as on federal student loans in forbearance
• may not have an interest limit
Because this story is still in development stages, borrowers for whom this may apply should keep up with updates about the interest waiver and payment pause option for federal student loans.
How Will This Affect Monthly Payments?
Borrowers who continue to make payments should see the principal balances of their loans go down more quickly since the entire payment would be applied to the principal balance after any interest accrued before March 13 was paid. This therefore could, in the long run, save those students money.
What This Relief Program is Not
Some advocacy groups want to see even more dramatic actions takens. Some, for example, suggest ending the seizure of borrower wages or tax refunds when that person defaults on a student loan—while still others are advocating for federal student loan debt cancellation.
Existing Options: Federal Student Loan Forbearance
After the payment pause ends, borrowers who are still not able to make student loan payments because of financial hardship may decide to apply for deferment or forbearance where, if approved, payments would continue to be paused for a period of time. Whether or not interest would accrue in that situation would depend upon when the government begins charging interest on federal student loans again.
Student Loan Refinancing With SoFi
During a time of zero interest and payment pauses on federal student loans, it likely doesn’t make sense to refinance these federal student loans to ones charging interest and having regular payments, no matter how low that rate or payment might be. Note that these programs are not available for private student loans, so it still may make sense to explore how refinancing could benefit borrowers with outstanding private student loans.
This interest waiver and payment pause, however, are intended as temporary measures. When interest begins to accrue again and payments required again, it may make sense to investigate refinancing student loans. Consolidating loans into one payment can make it more convenient for borrowers, and refinancing to a lower rate can reduce payments or shorten the term of the student loan.
With SoFi’s student loan refinance program, borrowers can consolidate and refinance in one straightforward step—and are also able to combine federal and private student loans together.
It is important to note that, when refinancing federal student loans, you forfeit any benefits that come along with them—including Public Service Loan Forgiveness (PSLF) and income-driven repayment plans.
We will continue to report on the state of the federal student loan interest waiver and payment pause as more information develops. Keep an eye on the SoFi Blog and the SoFi app for updates as they come in.
Student Loan Refinancing
If you are a federal student loan borrower you should take time now to prepare for your payments to restart, including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. (You may pay more interest over the life of the loan if you refinance with an extended term.) Please note that once you refinance federal student loans, you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans, such as the SAVE Plan, or extended repayment plans.
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