Was Student Loan Interest Waived During Pandemic?

Introduction

The COVID-19 pandemic caused financial hardship for millions of Americans, including those with outstanding student loan debt. In response, temporary relief measures were enacted by the federal government regarding federal student loans, including the suspension of interest accrual and mandatory loan payments. But what exactly did these student loan interest waiver policies entail and who did they apply to?

This in-depth look at was student loan interest waived during COVID-19 will examine the details of the federal student loan interest waiver, who qualified for relief, the current status, and what might happen next when protections expire after December 31, 2022.

Overview of the Temporary Federal Student Loan Interest Waiver

In March 2020, the passage of the CARES Act by Congress and its signing into law by President Trump instituted an emergency interest waiver on government-held student loans. This meant that interest would not accrue on federal student loan balances for a period of time.

The initial waiver applied to all Direct Loans and FFEL Program loans held by the Department of Education, which includes:

• Direct Subsidized Loans
• Direct Unsubsidized Loans
• Direct PLUS Loans (for graduate students and parents)
• Direct Consolidation Loans

This suspension of interest on qualifying federal student loans provided immediate financial relief to millions of, was student loan interest waived, preventing balances from growing larger during the pandemic and economic crisis.

The provisions in the CARES Act granted federal student loan borrowers a 6-month reprieve period from March 13, 2020 to September 30, 2020 where all interest was waived on eligible federal student loans.

As the COVID-19 crisis persisted, the interest-free period was extended several times through executive action. The current extension is set to expire after December 31, 2022.

Who Qualified for the Federal Student Loan Interest Waiver?

The implementation of the CARES Act student loan interest waiver in Spring 2020 meant that any individuals with qualifying federal student loans saw interest halted on their balances.

Even borrowers still in school with in-school deferments active on their federal student loans had interest stopped and, was student loan interest waived. Specific loans and borrowers eligible included:

Federal Direct Loans (subsidized and unsubsidized) – The most common types of federal student loans issued by the Department of Education were eligible for the interest waiver.

PLUS Loans (for parents and graduate students) – Federal PLUS Loans issued through the Direct Loan program qualified for interest being stopped and set to zero percent.

Consolidation Loans – Any consolidated federal student loans held by the Department of Education qualified for interest accrual being halted.

Perkins Loans – Federal Perkins Loans were included in the interest waiver, even though not directly issued by the Department of Education.

Defaulted borrowers – Importantly, even borrowers in default on federal student loans benefitted from interest being stopped.

As long as a borrower had federal student loans fitting the above categories held directly by the Department of Education, they qualified to have interest waived during the pandemic period.

How Much Was Student Loan Interest Waived to Save Borrowers?

By stopping interest accrual on all government-held federal student loans, the CARES Act student loan interest waiver accounted for significant savings for millions of borrowers.

According to Federal Student Aid data from the Department of Education, there was approximately:

• $7.8 billion in interest avoided just during the initial 6-month period from March 13 to September 30, 2020
• $5 billion saved per additional quarter the interest waiver was extended
• $102 billion in total interest avoided since March 2020 through the end of 2021 – a massive amount

The impact was most significant for borrowers with larger federal student loan balances. For example, a borrower with $50,000 in Direct Loans could have had over $2,000 in accrued interest during the pandemic without the interest waiver.

Was student loan interest waived, While private student loan interest and payments continued unabated, the federal student loan interest waiver offered substantial financial relief according to Federal Reserve and other economic research.

Changes and Extensions to the Federal Student Loan Interest Waiver

The original student loan interest waiver from the CARES Act covered 6 months initially. However, as COVID-19 remained ongoing, extensions to the interest protections were put into place:

CARES Act (March 2020) – Initial 6-month interest waiver from March 13, 2020 to September 30, 2020.

Presidential Memorandum (August 2020) – Extended waiver through December 31, 2020.

COVID-19 relief bill (December 2020) – Extended waiver through September 2021.

Presidential extensions (2021 to 2022) – Multiple extensions to the interest waiver through December 31, 2022.

In addition to being extended, the interest waiver was also expanded over its duration to cover more borrowers. The biggest change was including FFEL Program loans not held directly by the Department of Education, including commercially serviced FFEL loans.

Currently, the expansive federal student loan interest waiver is set to expire after December 31, 2022, ending emergency protections unless there are additional changes via executive or legislative action.

How Student Loan Interest Accrual Normally Works

To understand why stopping interest accrual provided such significant relief, it helps to understand how interest on federal student loans works under normal circumstances:

Interest begins accruing immediately when funds are disbursed, even during in-school and grace periods.

For Subsidized Loans, the government pays the interest during school and grace periods.

For Unsubsidized Loans, borrowers are responsible for interest during all periods.

Interest accrues daily based on the outstanding principal balance.

The interest rate is fixed for the life of the loan but varies by loan type and year originated.

Unpaid interest capitalizes (is added to principal) when the loan enters repayment status.

By stopping this interest accrual process temporarily, millions of borrowers avoided substantial interest costs during the pandemic.

Private Student Loan Interest Waiver Policies During COVID-19

While federal student loan borrowers received broad relief through the CARES Act, private student loan lenders were not mandated to offer concessions. Each private lender had discretion in granting hardship assistance or not.

• Most private student loan companies voluntarily stopped requiring payments for 1 to 3 months early in the pandemic, but interest generally continued to accrue.
• Only a small minority of lenders chose to halt interest like the federal government. Many consumer advocates urged mandatory private student loan interest waivers.
• Forbearances, revised payment plans, and other options were made selectively available by some lenders based on borrower need.
• But industry-wide protections for interest accrual were not enacted for private student loans. Critics contend this left many borrowers vulnerable.
• A few states, like California, took legal action arguing federal consumer financial laws could be applied to inhibit private student loan interest during COVID-19.

Overall, private student loan borrowers did not see anywhere near the level of broad relief as federal borrowers in regard to stopped interest accrual during the pandemic public health crisis.

The Student Loan Payment Pause in Relation to Interest Waivers

Alongside interest being stopped on federal student loans, mandatory payments were also suspended through the CARES Act and subsequent extensions. This payment pause worked in tandem with interest waivers to ease the burden.

Key details on the federal student loan payment pause:

Payments were suspended on most federal student loans starting in March 2020, initially for 6 months. This included Direct Loans, PLUS Loans, and some FFEL loans.

Borrowers could voluntarily continue making payments if they wished, which would go toward principal and interest.

Multiple extensions have kept the payment pause in effect, currently through December 31, 2022.

The Department of Education reported only 11% of borrowers continued making voluntary payments during the pause as of 2021.

Like the interest waiver, advocates and critics debate the payment pause’s benefits and costs as protections are set to expire soon if not extended further.

Analyzing the Pros and Cons of Student Loan Interest Waivers

There have been robust arguments made both in favor of and against the emergency federal student loan interest waiver:

Potential Benefits

• Prevented borrower balances from increasing significantly during the pandemic
• Provided immediate financial relief and helped borrowers allocate funds elsewhere as needed
• Stimulated the economy by reducing burdens during massive job losses
• Required no application or qualifications – reached millions of borrowers automatically

Potential Drawbacks

• Added to the federal budget deficit substantially
• Further delayed some borrowers from addressing principal balances
• Continued accrual pause could increase total interest costs long-term
• May not have incentivized borrowers enough to continue voluntary payments

Was student loan interest waived debate has remained active as expiration approaches, with reasonable cases made both for allowing it to lapse or extending provisions further.

Key Takeaways on Federal Student Loan Interest Waivers During COVID-19

• The CARES Act in March 2020 waived interest on federally-held student loans as pandemic relief.
• Multiple extensions pushed the interest waiver’s duration through the end of December 2022.
• Federal student loan borrowers saved an estimated $102 billion in interest avoided due to the waiver measures.
• Private student loans were largely not subject to mandatory interest waivers during COVID-19.
• It remains uncertain if the federal student loan interest waiver will be extended again or will expire as scheduled after December 31, 2022.
• Borrowers benefited greatly from paused interest but face renewed uncertainty when protections lapse absent more permanent policy changes.

Temporary relief like waived interest provided vital assistance during COVID-19. But many argue more expansive reforms are needed for long-term student debt sustainability. Was student loan interest waived, As waivers expire, millions of federal borrowers await details on what interest and payment rules may return in 2023.

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