On Friday, March 13, President Donald Trump announced he would be freezing student loan interest as part of a package of emergency executive actions designed to mitigate the economic fallout from the coronavirus outbreak. The unprecedented move will provide relief to the 42 million-plus Americans who owe more than $1.5 trillion in outstanding federal student loans.
Since this announcement, there has been much confusion about what this freeze actually means for student loan borrowers. To help clear up some confusion, Education First CU has answered some of the most common questions about the freeze.
What does a student loan interest freeze mean?
With the president’s student loan freeze in effect, no further interest will accrue on certain
federal student loans until further notice. Borrowers will only be responsible for paying the principal payments due on the loan for as long as the freeze is in effect.
Which loans are included in the freeze?
The interest freeze only applies to student loans that are “held by federal government agencies,” such as the U.S. Department of Education and its contracted student loan servicers. Loans issued by private borrowers are not subject to the federal interest freeze (unless indicated by the lender). In addition, some federally guaranteed student loans, including federal Perkins loans and FFEL-program loans, may not be subject to the interest freeze if they are not held by a federal government agency.
How long will the freeze be in effect?
As part of the administration’s relief efforts during the coronavirus outbreak, the interest freeze is temporary. It will be implemented automatically and continue until the policy is officially changed. The end date for the freeze has not yet been determined.
Does the interest freeze include any student loan payment relief?
The student loan interest freeze does not include any student loan payment relief. College graduates who are paying off their student loans must continue to make their monthly payments as usual. The move only affects the interest on qualifying federal student loans going forward.
How does the freeze affect borrowers who have already accrued a significant amount of outstanding interest?
All outstanding, non-capitalized interest must be paid before payments made during the freeze will apply to loan principal.
If the borrower has defaulted on their loan, the “forced collections” implemented in case of default will continue as usual. This includes the borrowers being subject to wage garnishment, offset of Social Security payments and automatic confiscation of federal and state tax refunds.
Trump’s interest rate freeze will halt balance growth and reduce the cost of repayment for some borrowers; however, it will not provide direct student loan relief for borrowers who are struggling to meet their loan payments due to lost income because of the coronavirus outbreak.