President Donald Trump — during a press conference Friday in which he declared a national emergency due to the COVID-19 outbreak — excited student loan borrowers when he announced intentions to pause the interest accrual on their federal loans to lessen the economic blow of the novel coronavirus. Higher education experts and advocates, however, are now questioning the impact of the announcement on struggling borrowers and whether it is the best way to immediately support them through financial hardship.
While the Department of Education (ED) has yet to publish guidance about the waiver and it remains unclear how it would be implemented, ED officials confirmed Friday evening the interest accrual pause would apply to all federal loans, including those in income-driven repayment plans, those in forbearance, federally-held Federal Family Education Loan Program (FFELP) loans, and federally-held Perkins loans. The interest waiver will be automatic, retroactively dated to Friday, though officials said it may take time to operationalize.
The method by which loan servicers would halt interest accrual — by lowering interest rates to zero — raised questions as to whether borrowers’ monthly payments would actually change. While ED has not confirmed whether that will be the case, it has been reported that waiving the interest accrual on loans would simply result in more of a borrower’s payment going toward the principal balance. As of Monday afternoon, ED’s press office did not immediately respond to a request for comment on whether the interest accrual pause would impact monthly payments.
That possibility left advocates concerned for those seeking immediate relief.
“This is a great first step and I am glad to see the president consider student loan borrowers,” said Antoinette Flores, the director of postsecondary education at the Center for American Progress (CAP). “Waiving interest means that borrowers will not see their debt balances grow as a result of accumulating interest.”
However, it would “not do anything,” she said, to provide immediate payment relief for borrowers facing lost jobs or wages, or for those borrowers facing tax seizure, Social Security [garnishment], and wage garnishment for defaulted loans.
Additionally, Beth Akers, a senior fellow at the Manhattan Institute focusing on the economics of higher education, argued that while she is “not diametrically opposed” to waiving the interest on student loans, she agreed “it won’t make a huge difference for those facing economic uncertainty.”
“We need to go a lot further here,” Akers said.
To Akers — and to a handful of others — that means pressing pause on student loan payments as a whole so borrowers who have lost the ability to earn an income in the short term are not struggling to make their monthly payments.
In addition to halting payment, Flores added that ED should “ensure that borrowers are still tracking toward loan forgiveness if they are on income-driven repayment or expecting Public Service Loan Forgiveness (PSLF), and stop the seizure of tax refunds, Social Security, and wages for defaulted loans.”
“These changes would help ensure that borrowers receive tangible relief in the interim and that no one goes delinquent on their loans as a result of the crisis,” she said.
Some, however, do believe the announcement has the potential to support borrowers in the short term.
Betsy Mayotte, president and founder of The Institute of Student Loan Advisors (TISLA), a non-profit group assisting students to navigate the student loan system, said “the biggest plus” of the temporary interest waiver is that borrowers in financial hardship can request to be put into forbearance and not accrue interest while making no payments.
While being put into forbearance requires borrowers to take action and make a phone call to their servicer, Mayotte said she thinks implementing disaster forbearance — in which borrowers are automatically placed into forbearance — “would have been a disaster for a lot of people” because it could stunt progress toward loan forgiveness for borrowers who can still afford to make their monthly payments.
Michele Streeter, external affairs and policy analyst at the Institute for College Access & Success (TICAS), however, said the fact that a slew of borrowers will now need to contact their servicers to be placed into forbearance “could overwhelm servicers and lead to errors.” This begs the question, she said, as to “what capacity servicers have to make this change and handle potential waves of forbearance requests.”
ED did not immediately respond to a request for comment on whether it will be reaching out to borrowers to let them know about their options for forbearance.
Regardless, higher education experts and advocates alike still have many outstanding questions about how the paused interest might work, such as whether that waived interest will be tacked back onto loans after the waiver is lifted. Plus, Akers added she is concerned about the announcement’s overall complexity.
“Part of the problem with waiving interest — because our repayment system is so complex — is it means a lot of different things for a lot of different people,” Akers said, adding that just “pressing pause on these financial obligations” is something everyone can understand.
One question many experts share is how long the pause on interest accrual will last. Mayotte, however, does not think ED will — nor should — provide a date.
“This whole situation is fluid. Everything can be open again in a month, or we could be in this situation in September,” Mayotte said. “I’d be surprised if they came up with a timeframe on it.”
TISLA published a blog post with detailed information for students managing their loans following Trump’s announcement, which the group is continuously updating as more guidance is published, and is working to create an online training module about borrowers’ options.
NASFAA created a web center to keep members and the financial aid community updated on pertinent news related to the coronavirus, and is hosting a free webinar today to review some of the most common questions related to Title IV and COVID-19. Stay tuned to Today’s News and NASFAA’s AskRegs for more news.
Publication Date: 3/17/2020