President Waives Interest On All Federal Student Loans, But It’s Not As Good As It Sounds

To fight some of the economic effects of the coronavirus, President Trump announced Friday he’s waiving interest accrual on all federally-held student loans, which is the bulk of all student loans outstanding.  Immediately people who pay on their student loans tried to figure out how much this would save them each month on their payments. But they didn’t have to bother.  By Friday night, the administration told them the answer; nothing.

The policy requires those paying on their loans to keep making payments of the same amount, but now all of it will go toward principal. This will shorten the life of the loans for many borrowers.

The biggest winners are those in forebearance, which borrowers can ask for if they lose their job or have some other hardship.  When their loans are in forebearance they don’t have to make payments, but the interest continues to accrue.

Still, all borrowers not relying on some sort of income-based repayment program come out ahead, which makes it difficult to understand why this policy makes sense.  Do we need to give economic gifts to lawyers and bankers who earned law degrees and MBAs?  The biggest borrowers are those who earned graduate degrees, and this program will save them thousands of dollars down the road.

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