Last week the Trump Administration announced a massive stimulus package to help relieve American consumers in light of the coronavirus outbreak. As part of the relief measures, President Trump said he would waive the interest payments on all federally held student loans. In essence, the measure stops interest from accruing on the loans and allows the monthly payments to all go towards the principal amount of the loan. With no interest payments, the borrower over time will accrue less interest and end up saving money and time to get out of debt.
Freezing interest will keep balances from growing during this time, and that's important, however, many borrowers are going to experience income shocks and urgent expenses that could impede their ability to make their regularly scheduled student loan payments. It specifically puts a freeze on interest accruing but does not necessarily lower the average borrowers monthly payment. This is not something that gives an immediate economic or monetary benefit to those with student loans but rather one where the benefit is felt over time.
Additionally, there is a safety net in the measures. The student borrowers who will feel the most relief for their student loans are those do end up losing wages. Those who fail to make their payment will have penalty fees waived. The True benefit, however, will be felt over time because the whole payment made during this time will be applied to the principal amount of the loan.
At Goodly we talk about the importance of paying down the principal amount of any loan because of the savings that can be had. That’s why we focus on empowering employers to contribute to their employee’s loans as a secondary, principal payment. For instance, on a $40,000 dollar 20-year loan, the average borrower can get out of debt 8 years and save $20,000 in interest by adding an extra $100 employer payment every month. Applying that logic to this context, if you are in a financial position to throw a little more money at your loans for a few payments, now is a time to really make a dent in your principal amount.
Waiving interest is welcome, but the key question is whether employers will help student loan borrowers reduce their monthly payments during the crisis. Employer contributions to student loans would provide much-needed, immediate relief to those employees who may be unable to work and are facing economic hardship during this time of uncertainty.
In order to make that possible, Goodly will be waiving all fees associated with rolling out student loan benefits for the foreseeable future, so please email me at [email protected] or click here to book time on my calendar, to discuss bringing student loan benefits to your employer.