President Donald Trump said Friday that he would waive the interest on all federal student loans amid the coronavirus outbreak, meaning borrowers could pause their payments without any penalties.
The measure is part of a larger strategy to mitigate the economic consequences of the pandemic which has so far infected more than 130,000 people and killed over 5,000 worldwide since January. Further details weren't immediately available such as how long the pause might last.
Currently, the U.S. Department of Education allows borrowers to put their federal student loans into a so-called deferment or forbearance if they want or need a break from their monthly bills. However, interest can accrue on the debt under those options, leaving a borrower with a bigger balance when they resume repayment.
While details are still scant on Trump's proposal, it appears that borrowers could use these options without their debt growing.
Senate Democratic leader Chuck Schumer sent a letter to the president on Wednesday with 30 Senate Democrats, asking him to grant six months of forgiveness for those with student debt. Meanwhile, consumer advocates have warned that the impacts of the pandemic could make it hard for many people to keep up with their student loan bills.
"COVID-19 is causing economic devastation across the country, with even greater job and income losses to come," said Toby Merrill, director of the Project on Predatory Student Lending at Harvard University.
"Suspending student loan payments is a helpful half measure, especially if interest accrual is frozen," said Alexis Goldstein, a senior policy analyst at Americans for Financial Reform prior to Trump's announcement. "The most distressed borrowers would potentially have hundreds of extra dollars to go toward food, supplies and medicine."
President Donald Trump may be looking to curry favor with voters in an election year where his hope of touting a vibrant economy is quickly deflating. The stock market has been reeling amid the outbreak, with the potential for more than 200 million people in the U.S. being infected under worst-case scenarios.
Democratic presidential candidate Bernie Sanders has made student debt relief a cornerstone of his campaign message. In 2016, Trump won votes from a significant chunk of disillusioned Sanders voters who appreciated Trump's populism and his isolationist foreign policy. As Sanders' campaign continues collapsing under the strength of the Joe Biden coalition, Trump is betting he can win Sanders voters over again like he did in 2016.
Outstanding education debt has outpaced credit card and auto debt. The average college graduate leaves school $30,000 in the red today, up from $10,000 in the 1990s. The average monthly student loan bill is nearing $400.
Ben Winters, a legal fellow at a nonprofit in Washington, D.C., said the coronavirus has made him worried about his finances. A break from his monthly student loan bill could help him cover the unexpected travel and medical costs he expects to be hit with soon, he said.
"My budget is stretched thin without a pandemic," Winters, 25, said.