President Donald Trump has some good news: he is waiving interest on student loans held by the federal government.
Here are 5 questions for the president to consider.
Student Loans: Interest Waiver
Trump shared good news with student loan borrowers last week: he’s temporarily waiving student loan interest on all student loans held by federal government agencies. The student loan debt plan is intended to provide economic relief to borrowers who are impacted by coronavirus. As the White House finalizes the details of Trump’s new plan for your student loans, here are several areas for the team to address to make the plan as robust as possible:
1. How will student loan payments work?
When interest is waived from student loan payments, how do the mechanics of student loan repayment work? Will borrowers receive a new student loan statement that excludes interest and thus pay less each month? Or will borrowers make the same monthly payment and the full student loan payment will be applied to the principal balance only? The mechanics are important to make clear, especially considering the widespread use of autopay.
2. Will Parent PLUS Loans also have interest waived?
Parent PLUS Loans are federal student loans held by government agencies that parents borrow to fund the education of a dependent child. Today, Parent PLUS Loan borrowers collectively owe approximately $100 billion. Presumably, Parent PLUS Loans will be included in this student loan interest waiver.
3. How will this plan affect borrowers on income-driven repayment plans?
Income-driven repayment plans are federal student loan repayment plans that lower your monthly payment based on your discretionary income and family size. Most borrowers accumulate large amounts of student loan interest. How will these borrowers be impacted?
4. How will unsubsidized student loans for current students be impacted?
Unsubsidized student loans accrue interest while students are in school, even though they are not required to make student loan payments. Will current students receive any interest waiver, even if they are not paying off student loans?
5. Will FFEL borrowers receive any comparable financial relief?
FFEL loans are student loans that were issued by banks (not the federal government) and are not held by federal government agencies. Therefore, FFEL borrowers likely will not be eligible for this interest waiver. Will FFEL borrowers receive any comparable relief?
Student Loans: 2020
Student loans have been a hot topic on the 2020 campaign trail. Sen. Bernie Sanders (I-VT), for example, has proposed forgiving all $1.6 trillion of student loan debt, including both federal and private student loans. Former Vice President Joe Biden has his own $750 billion student loan plan, which he has contrasted with the Sanders plan. Biden and Sanders both support the Public Service Loan Forgiveness program. Last month, Trump called for the end of the Public Service Loan Forgiveness program in his annual budget in favor of a simplified income–driven repayment plan that would offer the same student loan forgiveness plan for undergraduate borrowers, for example. U.S. Secretary of Education Betsy DeVos has explained why she believes it’s a good idea to end this student loan forgiveness program.
Remember, this announcement applies only to federal student loans (not private student loans).