Personal Finance

What you need to know about the government's break for student loan borrowers amid the coronavirus

Key Points
  • The Trump administration said it would waive interest on student loans amid the pandemic.
  • Should you put your bills on hold? 
  • It depends on your finances and repayment timeline. 
During the coronavirus, federal student loans won't rack up interest.

Amid the bad news piling up from COVID-19, one positive development emerged on Friday: Interest on federal student loans would be waived until further notice. 

That's never happened before and is an acknowledgment by the government of how tightly this pandemic could squeeze Americans' finances. Over the last decade, the average interest rate on federal student loans has been around 5.5%, according to higher education expert Mark Kantrowitz. Meanwhile, the typical monthly student loan bill is close to $400. 

As of midday Monday, it appeared lenders were still waiting on the government for instructions on how to roll out the unprecedented policy. (The U.S. Department of Education's federal student loans are serviced by some nine different companies.)

"Servicers are ready to begin the implementation process as soon as we have guidance from the Department of Education on the specifics and requirements of the program announced on Friday," said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade association.

Borrowers are eager for answers – and soon – so they can plan accordingly. What if you're in an income-driven repayment plan? Does the interest waiver apply to all federal student loans? 

"The announcement completely confused me," said Morgan Hopkins, 31, who works at a nonprofit in Philadelphia and owes more than $70,000 in student loans.

CNBC spoke with student loan experts monitoring the program along with officials at the U.S. Department of Education. Here's what we know so far. 

Do I have to apply for the interest waiver? 

No. A spokesman for the U.S. Department of Education told me the change is automatic. "Any borrower with a federally held loan will have interest waived during this period," he said. 

A spokesman also said the policy should be in effect soon, and will be retroactive to Friday, March 13, when President Trump made the announcement.

Which loans qualify? 

A spokesman for the department said all federally held student loans qualify, which would suggest direct loans, FFEL or Family Federal Education Loans, Perkins Loans, Parent Plus and Grad Plus loans are all eligible.

Private loans, of course, don't qualify, but you might try reaching out to your lender to ask if it's providing any accommodations during the pandemic.  

If I'm financially struggling, will this really help? 

Many consumer advocates say slashing student loan interest rates doesn't go far enough to help struggling borrowers. They say the president should have suspended the bills all together during the pandemic. 

"Borrowers should not be worrying about their student loan payments at a time when they should be focused on the health and safety of their families and communities," said Persis Yu, the director of the Student Loan Borrower Assistance Project at the National Consumer Law Center. 

Still, the policy makes it more affordable to pause your payments. 

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Trump gives people with student loans a break amid coronavirus

The waiver means you could now ask your servicer to put your loans on hold through a so-called deferment or forbearance without watching your debt mushroom under interest. 

"Forbearance, which is usually a mixed blessing due to the accrued and capitalized interest, is now, well, just a blessing," aid Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit that helps student loan borrowers with free advice and dispute resolution.

Should everyone put their loans on pause then? 

Probably not. 

You shouldn't stop paying your student loans unless the pandemic has hampered your ability to do so, Mayotte said. That's because your payments could now go more toward your debt's principal, meaning you'll be lowering the amount you owe in the long run. 

"I would be trying to repay as much interest-free money as I can," Mayotte said. 

What if I'm in an income-driven repayment plan?

Under these plans, student loan borrowers' monthly bills are capped at a portion of their income, and some payments wind up being as little as $0. The government forgives any remaining debt after 20 years to 25 years.

These plans could be a lifeline for borrowers struggling amid COVID-19, said Will Sealy, the co-founder and CEO of Summer, a company that helps borrowers simplify and save on their student debt. 

If your income has dried up as of late, you should let your lender know so it can recalculate your monthly obligation.  

Sealy said these plans can be preferable to a forbearance or deferment since they lead to debt forgiveness, and because the financial relief will last beyond the fallout of COVID-19. 

Another benefit of the plans right now? "The administration confirmed that interest will not accrue for these borrowers under this new policy," Sealy said. 

What if I'm pursuing public service loan forgiveness? 

The public service loan forgiveness program was signed into law by President George W. Bush in 2007 and allows certain not-for-profit and government employees to have their federal student loans canceled after 10 years. 

By the end, you need to have made 120 qualifying, on-time payments in an income-driven repayment plan or the standard repayment plan. That means if you lose your job over COVID-19, you should "immediately seek a new public service job," Kantrowitz said. Or, if you still have your current job, it'll behoove you to keep up your payments if you want to limit your repayment timeline to those 10 years. 

"Payments count toward public service loan forgiveness only while the borrower is employed full-time in a qualifying public service job," he said.

That said, if you need to put your loans on hold through a deferment or forbearance, at least your debt won't swell in the meantime. 

(Will this break from interest help you amid the pandemic? What is your student loan servicer telling you about the news? Email me: