US DOE Official Update: March 20

Edited March 21, 2020 to add current information
As of Friday, March 20, the US Department of Education formally announced that “all borrowers with federally held student loans will automatically have their interest rates set to 0% for a period of at least 60 days. In addition, each of these borrowers will have the option to suspend their payments for at least two months to allow them greater flexibility during the national [COVID-19] emergency.”

President Trump had originally promised at his March 13 Rose Garden address to halt all student loan interest for the unforeseeable future, so the addition of the ability to  temporary defer payments comes as a huge relief to borrowers affected by the COVID-19 pandemic or financial hardship of any kind for any reason.

“Right now, everyone should be focused on staying safe and healthy, not worrying about their student loan balance growing,” said Education Secretary Betsy DeVos.

The “administrative forbearance” granted by the DOE includes, for any borrower who requests one via their loan servicer, “will be in effect for a period of at least 60 days, beginning on March 13, 2020” and authorizes “automatic suspension of payments for any borrower more than 31 days delinquent as of March 13, 2020, or who becomes more than 31 days delinquent.”

Borrowers who can continue to make payments, however, definitely should, and take advantage of this temporary halt on interest accrual. For borrowers whose accounts have amassed years or decades of interest that has been capitalized—applied to the principal—the lack of interest accrual during this time offers an opportunity to pay down much more of that interest than usual for those who can still afford to make payments. For those able, making extra payments during this time would be especially advantageous, especially when targeting individual loans with the highest interest rates.

Unfortunately, payments made during this time will not go directly to the principal balance until “all interest accrued prior to the president’s March 13 announcement is paid,” so it’s a little less helpful for borrowers with many years of capitalized interest.

Original Post from March 14

If you’re one of the millions of people buried in student loans or being crushed by  interest capitalization, you’re not alone, and you’re hoping that the government might take steps that will enable you to dig your way out of this seemingly bottomless hole the same way they bailed out big banks and automakers in response to the 2008 recession.

Democratic politicians have been calling for various student loan-debt relief programs to help the 44.7 million American student loan borrowers. With Democratic presidential candidate Bernie Sanders calling to cancel all $1.64 trillion of the US’s student loan debt with no provisions by taxing Wall Street transactions and Joe Biden’s plan for a more generous and efficient income-based repayment plan system, either choice would definitely feel like a win for student loan borrowers with the only remaining question being the likelihood of implementation for either plan.

What Is Joe Biden’s Student Loan Relief Plan?

Biden’s offers a greater chance to garner bipartisan support while greatly benefiting current borrowers by capping monthly payments at 5 percent of discretionary income (current repayment plans charge between 10 and 15 percent) over $25,000 of the loans with forgiveness after 20 years of responsible payment. Borrowers who earn less than $25,000/year would not have to make payments while their income remains below that threshold, and interest would not accrue during this deferment. Additionally, the remaining balance forgiven after the 20-year repayment period plan would be tax-free, whereas current income-based repayment plans charge income tax on the remaining balance that often results in a huge, unexpected tax bill for borrowers.

What’s Being Done Right Now to Address Student Debt?

On Friday, March 13, President Trump promised during the Rose Garden address a pause to all interest on federal student loans during his National State of Emergency declaration in response to the novel Coronavirus, “and that will be until further notice.” This “interest waiver” will apply automatically to students with federal student loans only, but at this time, many questions remain—including whether the waiver to apply to borrowers enrolled in all of the many different repayment plans or only to those enrolled in income-driven repayment plans, whether interest not charged during the waiver period will later capitalize, and whether loan payments made during the waiver period will go toward accrued interest still owed or if it will all go toward to principal balance.

Last year, Florida Republican Marco Rubio proposed to end interest on federal student loans altogether. H.R.4603, called the Leveraging Opportunities for Americans Now (LOAN) Act, is currently “referred to the Committee on Education and Labor, and in addition to the Committee on Ways and Means, for a period to be subsequently determined by the Speaker” as of October 4, 2019. The Education Department reports that it charged $100 billion in interest for fiscal year 2019. It’s rare for a Republican to support any help for student loan borrowers, so I am hopeful that this will result in a larger trend toward bipartisan efforts to help not only borrowers but the economy as a whole by agreeing to pass some form of relief.