President Trump announced he would temporarily waive interest on certain federal student loans to ease the financial burden people are dealing with because of coronavirus. But what exactly does this mean?
Interest will not accrue on federal student loans. This does not impact any private student loans.
This does not mean that you should stop making payments. You will still have to pay the required minimum monthly payment due on your student loans. If you simply stop making payments, your loans can go into default, which has a lot of negative consequences.
Instead, your entire payment will be applied directly to the principal balance. With the total portion going to the principal, you will make a bigger dent paying off your student loans.
This is also helpful if you need to temporarily pause student loan payments with a deferment or a forbearance. Generally, when you put your student loans in deferment or forbearance, and for some in income-driven repayment plans, the loan balance will increase because of the unpaid interest.
Now you can pause payments without feeling the anxiety from watching your loan balance grow. Normally, the only time your loans don’t accrue interest in deferment is if you have subsidized student loans. But with interest waived, no interest will accrue on all your federal loans, even if a deferment or forbearance.
Keep in mind, for the duration of your deferment or forbearance, you will no longer be making qualified payments. So, if you’re working towards public service loan forgiveness for Public Service Loan Forgiveness or Income-Driven Repayment Plans, the cancellation of debt will be pushed back.
What are my options for my student loans?
If you’re struggling to make student loan payments, there are options to pause student loan payments for both federal and private student loans.
Since interest rates are at historic lows, it could also be a time to consider the pros and cons of refinancing student loans. Refinancing private student loans to a lower interest rate can help save money and pay off debt quicker. Compare lenders to see who is right for you. But refinancing federal loans means a loss in many benefits, including any federal forgiveness programs, income-driven repayment plans, generous deferment options, and a death and disability discharge.
Consider a cash back credit card. Buy everyday items you are already purchasing anyways (i.e. groceries and gas), and completely pay off your balance. Then apply that cash back towards your student loan balance. The Sallie Mae Accelerate card gives you 1.25% on every purchase, plus a 25% bonus cash back when you use your rewards to pay off any student loan debt – both federal and private.
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