What to Know About President Trump’s Federal Student Loan Announcements
This article contains breaking news and events related to the current state of politics and the economy. While we try our best to keep our articles as up-to-date as possible, the ongoing effects of COVID-19 are happening in real time and information is subject to change.
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.
SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
CLICK HERE for more information.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.