Everything You Need To Know About The Student Loan Interest Waiver
As millions of Americans are out of work due to COVID-19, the economy is putting a pause on bills you’d normally be required to pay. There’s a halt on evictions for renter and foreclosures for homeowners, and credit card lenders are pausing late fees and penalties.
Student loan borrowers are also getting a break. When the country entered a state of emergency on March 13, the President announced a waiver on student loan interest fees as well.
But what does the interest waiver mean for borrowers? Before you skip payments, make sure you understand how your loan is changing, both in the short- and long-term.
What Is The Student Loan Interest Waiver?
On March 13, President Donald Trump announced that interest on federal student loans would initially be waived for 60 days. Through the CARES Act that was signed into law on March 27, interest is now being waived through September 30.
This is automatic; you don’t need to log into your loan account and request this change. If you continue to make payments during the interest-free period, it will go toward your principal amount, not interest.
If your loan is in default or you’re otherwise late on making payments, those loans won’t accrue interest, either. All federal student loans, regardless if you’re up to date, are eligible. If your loans are in default, they will not accrue interest during the waiver.
The CARES Act only covers federal student loans, not private loans. If you have a private student loan, you’ll need to contact your loan servicer directly to see if you qualify for any type of hardship assistance.
What Is Administrative Forbearance?
The CARES Act not only waives student loan interest, it also pauses student loan payments. This is called administrative forbearance.
Administrative forbearance allows you to temporarily stop making payments on your student loans without facing penalties or fees. If you have federal student loans, you aren’t required to make payments until October 1. If your loans are in default, delinquent or you’re otherwise late on making payments, they are still paused. This means you don’t need to make payments on them through September 30.
If you have the means to continue making federal student loan payments, you don’t have to stop. Making payments doesn’t hurt your loan standing and with interest waived, you’re paying down your principal balance faster. You might end up paying off your loan sooner because of it or lowering your total balance over the life of the loan.
If you have an income-driven repayment plan (IDR) and you’ve lost your job due to the COVID-19 crisis, contact your lender about recalculating your monthly payment. You’ll get a new monthly payment amount based on your current income. Since all loans are on administrative forbearance, you’re not required to make payments through September 30. Once the forbearance period ends, your payments will restart with your new amount.
Administrative forbearance doesn’t apply to private student loan borrowers. If you have a mix of federal and private student loans, your federal loans will be suspended, but you’re still on the hook for making payments to your private student loans.
If you only have private student loans, contact your lender as soon as possible. If you’re suffering from job loss or you’re unable to work due to the coronavirus outbreak, explain your hardship to your loan servicer. They might not be able to offer you 6 months of forbearance, but you can find out if you qualify for some type of hardship assistance.
Are You Eligible For Federal Student Loan Assistance?
If you have federal student loans, both the interest waiver and administrative forbearance will automatically apply to your account. There’s nothing you need to do on your end. If you’d like to continue making payments, feel free to do so. But if you don’t have the financial means to make student loan payments right now, you don’t need to.
The Department of Education says that borrowers who’ve made payments after the President’s announcement are eligible for refunds if they need the cash. Those with defaulted loans are benefitting as well:
- If your federal tax refund was being withheld to make payments toward your defaulted student loan, you’re eligible to get that money back, as long as it happened after March 13.
- If your Social Security payment or disability pay was withheld to pay for your defaulted student loan, you’re eligible for a refund. But only if the pay was in the process of being withheld after March 13.
- If your wages were garnished to pay for your defaulted student loans, you’re entitled to that money – as long as the garnishment happened after March 13. If the Department of Education receives money from garnished wages between March 13 and September 30, they’ll issue a refund to you. If your wages were set up for garnishment, your employer will receive a letter notifying them to halt wage garnishment.
If your loan is in default with a private collection agency that is contracted by the Department of Education, those agencies are required to stop sending collection correspondence during the suspension. That means you won’t get phone calls, letters or billing statements through September 30.
Remember that only federal student loans are eligible for the student loan interest waiver and administrative forbearance. If you have a private student loan, you’ll need to contact your lender to request hardship assistance. While lenders aren’t required to help, many banks, credit unions, online lenders and schools are offering assistance on a case-by-case basis.
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