In an effort to bring aid to those struggling during the coronavirus crisis, President Trump has taken significant measures to ease the burden of student loan payments on borrowers. On March 13, he announced the interest on student loans would be waived “until further notice” and on March 20 he took things a step further by suspending student loan payments until September 30, 2020.
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If you have questions about what this could mean for your student loans, keep reading. Below are some answers to the biggest questions surrounding these new measures.
How to take advantage of the student loan interest waiver
There are several ways that you can take advantage of waiving interest on student loans. For one, as explained above, you can continue to make payments on your loans interest-free. However, you have other options available to you, as well. They are as follows:
For another, now is a good time to consider refinancing. Student loan interest rates are incredibly low right now, thanks to multiple rate cuts. If you can refinance, it may make sense to lock in at an affordable rate and lower your monthly payment.
Public student loan forgiveness
In addition, those trying for public student loan forgiveness will be pleased to know that, even if they pause their student loan payments for the allowed six-month period, those payments will still be counted towards the required 120 monthly federal student loan payments. Since the legislation is so new, your lender may not have updated information on this yet, but it’s a smart idea to keep checking back for updates.WHAT HAPPENS WHEN THE PERSON YOU COSIGNED FOR DOESN'T PAY?
Income-driven repayment plans
As with public student loan forgiveness, even if you pause your payments during coronavirus, they will count towards your 20 or 25 years or payments, which are required under your income-driven repayment plan.
Which student loans qualify for suspension and waivers?
The suspension and waivers only apply to student loans that are owned by the federal government. This means that if you have private student loans, as well as some Federal Family Education Loans (FFEL) and Perkins Loans, they may not qualify.
If you’re not sure if your federal loans are eligible, your best bet is to talk to your loan servicer to talk about your options. If you’re currently having trouble making your payments, it may make sense to try to consolidate your non-qualifying loans into a Direct Consolidation Loan, which does fall under federal jurisdiction.
Those with private student loans should also know that the Coronavirus Aid, Relief, and Economic Security (CARES) Act does allow your employer to help pay up to $5,250 of your student loans this year. If you’re struggling to make your payments, it may be worth contacting your loan servicer to discuss that option.
How this affects your student loans
If you are able to keep making payments on your student loans during this time, it makes financial sense to do so. While these measures will not change the amount that you’re expected to pay monthly toward your student loans, they will affect how your payment is allocated, which can save you money in the long run.
Essentially, every time you make a payment toward your loans, a portion of that payment goes to paying the interest that has accrued on the loan and the remainder goes to paying down the principal loan amount, or the amount that you’ve borrowed.
Since no new interest is accruing on your loans during this period, you have a chance to get ahead. If you keep making payments on your loans, a portion of your payment will go toward paying down any previously-accrued interest and then the remainder will go toward your principal loan amount.
Over time, you’ll be able to pay down more of your principal balance than you would have if interest had kept accruing, which means you’ll be able to pay off your student loans faster.