Trump’s student loan interest exemption is not what you think
The waiver is automatic; you don’t need to contact your loan officer to be eligible. And the Education Department said it expected servers to “operationalize” the change in about a week and that the waiver would be retroactive to Friday.
Interest will be waived for borrowers who participate in income-driven repayment plans, which includes anyone seeking to have their loans written off by the civil service loan cancellation program. People participating in this program, which covers all kinds of workers, including healthcare professionals and emergency medical workers, will still have their monthly payments counted towards their goal of 120 payments, even if they are not. not required to pay anything because their income is very low.
But many questions remain unanswered.
More importantly, will the waived interest be added to the principal once the waiver period ends? I have asked questions about this on several occasions, but the Department of Education has not offered an answer. This is crucial: if the canceled interest is added back later – a process known as capitalization of unpaid interest – it could be costly for borrowers.
Are Federal PLUS Loans, which graduate students and parents use, part of the waiver? There’s no reason they weren’t, but I couldn’t get confirmation of that.
Is the Department of Education really confident that its loan officers can handle these changes on the fly, in about a week? I do not.
The entire federal student loan system has grown more complex over time, so making a substantive change is a serious challenge. In addition to this, many service officers confused borrowers, especially those in the civil service loan cancellation program.
Service agents are probably already experiencing high call volumes, as restaurant workers and others lose their jobs or see their income plummet. And it’s unclear what might happen if they had to fire their call center workers home.
Travis Hornsby, the founder of Student loan planner, who makes money through tuition, personalized advice and refinancing commissions, had her own questions during our interview on Saturday. First, what happens to students whose payments are deferred while still in school but whose interest is still supposed to accrue?
Here is another scenario, which begins with the fact that there are many types of repayment plans. Many borrowers have repayment plans with monthly bills so low that additional interest accumulates and accumulates over time. Any additional money borrowers pay back is supposed to first go to reduce the dollar volume in that accrued interest bracket, says Hornsby. Will this new waiver change that and result in monthly payments towards the principal instead?
In response to some of my questions, a spokesperson for the Department of Education sent an email saying, “We are in the process of finalizing the details and will share them as soon as they are available.”
I will ask them the rest of these questions immediately. And I will get the answers back to you once I get them.
Tara Siegel Bernard contributed reporting.