The federal government has made some unprecedented changes recently in response to the global Coronavirus pandemic. One of those changes is a freeze on student loan interest rates. The purpose is to help you if you are experiencing a financial hardship like loss of income from a layoff or reduced shifts and hours. This freeze sounds ideal, but will it actually save you money? Here’s what you need to know:
What Will the Student Loan Interest Rate Freeze Do?
The most important thing to understand is what the freeze will and won’t do. The freeze will reduce your interest rate to 0% as of March 13, 2020. This means that no interest will accrue after this date. However, you will still have to pay on any interest that accrued before this date. If you make a payment during the freeze, the money will be applied to your outstanding interest before it is applied to the principal balance. The freeze will not lower your payment amount.
The freeze will go into effect automatically and is expected to last for at least 60 days from March 13.
Not All Student Loans Are Eligible
For your interest to be waived, you must have a loan that is owned by the U.S. Department of Education. This includes:
- Direct Loans
- Federal Perkins Loans
- Federal Family Education Loans
If you have Perkins Loans or Family Education Loans that are owned by your school or a commercial lender, they aren’t eligible for the interest freeze at this time. Private loans are also ineligible.
What Is an Administrative Forbearance?
Along with the interest freeze, the government has also allowed borrowers to request an administrative forbearance. This means that you can temporarily stop making payments toward your loan without becoming delinquent, or behind in payments. If you are already delinquent by 31 days or more, you will automatically be placed in a forbearance. Note that the administrative forbearance is not automatic for everyone—if you would like to opt in, you must contact your loan servicer and request it.
Along with the interest freeze, the administrative forbearance is scheduled to be applied March 31st but will be backdated. It will last for at least 60 days, and it is not available for private loans.
Forbearance Can Prolong Your Payment Schedule
An administrative forbearance may sound like music to your ears, but if you are on an income-driven repayment plan, or if you make payments under the Public Service Loan Forgiveness program, you may want to think twice before you request it. The time your loans spend in forbearance does not count toward your repayment schedule. In other words, however long your forbearance lasts is how much longer it will take to pay back your loans.
You can still choose to make full payments or even partial payments during this time. If you need to change your payment plan, you may be able to do that too. Contact your loan servicer to find out what options are available and what would work best for your situation. Check studentaid.gov periodically for future updates.
How Does the Student Loan Interest Rate Freeze Affect Me as a Student?
If you are still in school and your classes switch to online, you are still eligible for financial aid so long as you follow your teacher’s instructions and participate in your coursework. If your need for financial aid is now greater, or if you have specific questions about financial aid, you must contact your school’s financial aid office.
At Charter College, our staff are ready to answer your questions. Whether you’re a current student wondering about financial aid, or a prospective student who wants to learn more about our programs, call 888-200-9942.