Donald Trump Temporarily Waives Interest on Student Loans, But With a Catch

President Donald Trump has been the face of the response to the coronavirus outbreak this week, ramping up government efforts to stem the tide. While Trump addressed the nation on Wednesday and blocked travel to several European countries, his main strategy came on Friday when he declared a national emergency.

During his press event in the White House rose garden, the president introduced several measures and acts to relieve the pressure on citizens during the pandemic, and stop the spread of the coronavirus. One of the surprising decisions came with the decision to waive all interest on loans held by the federal government.

The decision strikes at the heart of a problem facing many recent college grads saddled with debt. The waiving of the interest isn’t a free pass at payment on the loan, it does still come in handy. It means that full payment will go toward the principal balance.

Typically students don’t have much say in how their payments are spread across their loan. Interest usually gets first consideration with lenders and then a smaller percentage goes to the original loan.

While the decision is a positive for many, there is a catch with the rules of the loan. Borrowers will still have to pay their regular monthly payments. Despite interest being removed from the scenario, the Department of Education made clear that monthly payments will not drop.

Despite the slight catch, there is a group of students who will benefit over others. With many facing financial hardship due to the coronavirus, the interest waiver gives them a reprieve from having to file a hardship forbearance. When in forbearance, interest typically continues to be added to the principal total. According to the Chicago Tribune, the waiver will remove those on forbearance from having to accrue interest. This will cover those who will need to file soon and those who are already in forbearance.

As the Chicago Tribune notes, there are still some unanswered questions about the interest waiver and what Trump is offering. Will the waived interest be added back to the principal or capitalized once the order expires? Will the plan cover PLUS loans? Will servicers be able to handle the load of an emergency change?

The Tribune reached out for confirmation but didn’t get an answer from Department of Education representatives.

President Trump had been under fire for his administration’s response to the coronavirus pandemic. This includes the biggest stock market drop since 2008 and a slew of panic buying at stores.