What You Need to Know About Waiving Student Loan Interest
On Friday, President Trump said he would drop interest on federal student loans. But it’s not as exciting as it sounds.
You will still need to make their regular federal student loan payments. The difference is that your entire payment will go towards paying the principal, rather than your usual principal plus daily interest.
The only way to achieve significant savings on student loans is to make a large payment during the waiver period, sufficient to significantly reduce the principal. This way, when the percentage resumes, you will have a lower balance on which this percentage can rise.
But if you’re worried about your finances at all right now, you probably aren’t thinking about making a large payment to your student loan balance. So think of giving up interest as a method of slowing down the growth of your loan balance while you keep making regular payments.
What if you find it difficult to come up with a minimum payment? Avoiding interest has a slightly more tangible benefit to you. As Ron Lieber writes in the New York Times , interest is usually charged on federal loans that have been deferred, that is, payments have been suspended due to financial difficulties. Waiver is now like a 100% suspension of lending – both your payments and how quickly your balance will grow due to interest.
You don’t have to do anything to get your eligible loans free of interest, and you will see the loan status change in about a week (with an interest freeze retroactive to Friday).
But Lieber points out some loans that are not covered by the waiver:
- Private loans
- Federal family education loans
- Perkins credits to your school
And there is another big unknown: we do not yet know if this rejected interest will be re-added to loans at the end of the rejection period. The Ministry of Education is expected to finalize the plans and publish them in the near future.
If you expect to have trouble making the minimum student loan payment, please contact your lender to discuss your options . If you find yourself unemployed for a period of time during the coronavirus outbreak, chances are you can pause your student loan payments until your income stabilizes.