The coronavirus has had a major impact on people’s livelihoods. Americans need all the help they can get during this difficult time. In response to the pandemic, President Trump suspended student loan interest on all federally held student loans. Keep reading to learn everything you need to know about the changes.
State of Emergency
The President declared a national emergency on March 13 in response to COVID-19. The decisions paved the way for the Coronavirus Relief Bill, a legislative effort to lessen the pandemic’s economic impact. The bill allocated $2 Trillion in aid, which includes direct payments, expanded unemployment, small business lending, and more. It also includes a temporary suspension of student loan interest on federally held loans.
Coronavirus Student Loan Interest Relief
Most households have some form of student loan debt. With many already struggling to keep up with the demands of their student loans, this halt in the economy is definitely not helping. This is why the federal government has temporarily waived student loan interest on federally held loans.
How Does it Work?
The halt on federal student loan interest went into effect with the passing of the Coronavirus Relief Bill on March 25. Under the relief bill, interest for student loans is reduced to 0% APR for 6 months. In addition, loan servicers must grant forbearance (payment deferment) to anyone who requests it within 60 days of the President’s announcement. For borrowers who continue to make payments on their student loans, their payment amount does not change, however, the entire payment goes toward paying down the principal of the loan. In addition, if your loan is already in forbearance or different, the 0% APR still applies for 6 months. This means your loan will not accrue interest for 6 months.
Student Loan Interest Deductions
Waving of student loan interest can help provide some economic relief right now, however, it will have an impact on your taxes, as student loan interest is a tax deduction. The less you pay in student loan interest, the less your deduction will be. This isn’t necessarily a bad thing, as you will be paying down the principal a little faster, but it is something to be aware of when it comes time to prepare and file your 2020 taxes.
Here are some common questions you may have about the student loan interest relief and what you need to know.
Do I have to Apply?
No, you do not need to apply. If you have a federal student loan, the student loan interest waiver will automatically be extended to you.
Does It Affect My Taxes?
If you deduct student loan interest on your taxes, it impacts your deduction. Your interest expenses will be lower for the year, so your deduction will be smaller.
Which Student Loans Qualify for Relief?
Not all student loans qualify for relief. The bill provides relief to federally serviced loans. The ruling excludes private student loans that are held by banks and financial institutions. It also excludes FFEL loans and Perkins loans because they fall under the Federal Student Aid Office. If you are unsure who is servicing your loans you can look it up at the Federal Student Aid Office website.
When Will Waivers Take Effect?
The interest waiver took effect starting in March and will last for as long as 6 months.
Does This Affect Loan Repayment?
The suspension of student loan interest does not affect your actual payment amount. The ruling only affects the interest portions of your balance, so you still have to make payments. However, your entire payment goes towards the principal balance of your loan. If you are unable to make payments on your loans, you should contact your lender. Under the new directive, they must grant a forbearance if you request it within 60 days of the president’s announcement on March 13.
More Tax Questions?
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