Our Special Coronavirus Bulletin #1: Coronavirus and Your Financial Aid, covered the President’s March 13 announcement that he had “waived interest on all student loans held by federal government agencies, and that will be until further notice.” It also noted that there are many outstanding questions about this waiver. Now, some answers have begun to emerge.
So far these answers haven’t been announced by the U.S. Education Department (ED) or its Federal Student Aid (FSA) office, but by The New York Times after questioning ED officials who say they’re still “finalizing details.” Here’s what The Times learned:
- Affected Loans: Loans made under the Federal Direct Loan Program (FDLP) are held by ED, so they should end up with this interest waiver. But loans still held by lenders that participated in the old Federal Family Education Loan Program, and Federal Perkins Loans still held by postsecondary schools, will not. The Times pressed ED about whether this waiver will apply to FDLP PLUS Loans for graduate students and parents, but ED wouldn’t confirm this.
- Begin Date: ED advised The Times that this waiver will be retroactive to March 13, although it’ll probably take about a week for federal student loan servicers to “operationalize” it.
- Borrower Responsibilities: ED advised that this waiver will be automatic. You need do nothing to get it.
- Impact on Monthly Payments: FDLP servicers have no instructions from ED to reduce monthly payment amounts due to this interest waiver, so what you pay every 30 days will likely remain unchanged — i.e. no short-term benefit.
- Impact on Overall Debt: Normally monthly FDLP payments are first used to pay down interest owed, then to reduce FDLP principal. So everything you pay on/after March 13 should go to principal. This’ll shrink your debt faster, which means the amount you’ll repay in the long-term will be reduced.
- Impact on Payment Postponements: Normally, when monthly payment obligations are postponed with deferments, interest on FDLP Unsubsidized Loans continues to pile up and, at deferment-end, it gets added to debt principal. If payments are postponed through a forbearance, the same normally occurs on both Subsidized and Unsubsidized FDLP Loan interest. But in the long-term this interest waiver should lead to faster debt elimination and less debt to repay.
- Waiver Reversal: Will waived interest be added to your FDLP debt later? ED could not, or would not, give The Times to answer on this question.
- When Additional Guidance Will Come: ED would only tell The Times it would share more details on this waiver “as soon as they are available.”
Keep looking here, or at FSA’s coronavirus webpage (https://studentaid.gov/announcements-events/coronavirus) for more information.