What Trump’s Student Loan Interest Freeze Does - And Does Not - Do

From: forbes.com
By: Adam S. Minsky

Yesterday, President Trump announced that he would be freezing student loan interest as part of his national emergency declaration regarding the Coronavirus outbreak. But with few details provided during his public announcement, student loan borrowers have been wondering what exactly this means for them.

Here’s what President Trump’s student loan interest rate freeze would do:

• Interest accrual on certain federal student loans will be frozen. This means that no further interest will accrue on certain federal student loans going forward.

• The student loan interest freeze will only apply to student loans “held by federal government agencies,” such as the U.S. Department of Education and its contracted student loan servicers. 

• The student loan interest freeze is temporary, but will continue indefinitely until the policy is changed.

• The student loan interest freeze will be implemented automatically, likely in the coming week (although the exact timing is unclear).

While some applauded the President’s decision, there is much that the national emergency declaration does not do:

• Private student loans are not covered by the interest freeze, since these loans are not held by U.S. federal government agencies. 

• Certain federally-guaranteed student loans — such as 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 (which is the case for many of these loans).

• Borrowers must continue to pay their normal monthly payments on all student loans. Your monthly payment amount will not change, nor will your payments be suspended. To be absolutely clear: the President’s declaration does not include any student loan payment relief at all, whatsoever.
  

• For student loan borrowers who have already accrued significant uncapitalized interest (such as for borrowers on income-driven repayment plans), all outstanding interest will still have to be paid off first, before any payment will be applied to principal. This is required under federal regulations and the underlying federal student loan promissory notes, and President Trump’s declaration does not alter these terms.

• For student loan borrowers in default, so-called “forced collections” will continue. That means student loan borrowers will still be subject to administrative wage garnishment, offset of Social Security payments, and involuntary seizure of federal and state tax refunds. 

Ultimately, while President Trump’s interest rate freeze will pause balance growth (or, in some cases, temporarily reduce the cost of repayment), student loan borrowers who are struggling with lost income or wages due to the Coronavirus outbreak do not receive any direct student loan relief from the national emergency declaration.

This is an evolving situation, so stay tuned.