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0% FED interest rate. 0% Federal student loan interest rate. These are truly amazing times. However, 0% interest does not mean 0% action.

There was a shock on Sunday, 15th of March 2020 as the Federal Reserve made a proclamation that it would reduce interest rates to zero as part of the efforts to prevent the country from going into recession due to the recent coronavirus outbreak. Simultaneously, the benchmark interest rate of the U.S was also cut for the first time in history from a range of 1% to 1.25% to 0%. 

The aftershock was then on Friday, March 27th when Congress passed the CARES Act that had a number of items in the bill to relieve Americans from financial hardship.  The main points of focus for this article are around four items: 

  • The ability to pause payment on your federal student loans until September 30, 2020.
  • No interest on your federal student loan payments through September 30, 2020.
  • The ability to count these 6 months of no federal student loan payments for purposes of any student loan forgiveness program, including public service loan forgiveness.
  • The ability of your employer to pay up to $5,250 of your student loans tax-free.

Let’s break these down.

What 0% Interest on Student Loans and No Payments Mean?

The first thing that the loan servicers provided was 0% interest on your federally backed loans. When logging into your account for a federally backed loan, you should see zero percent (0%) in the “Interest Rate” column.  Please confirm this with your lender and understand how rare this situation is. Since your 6-months grace period, chances are you have not seen an opportunity like this. 0% interest on a loan is extremely rare and something that you should take every opportunity to take advantage of at this point.

The second thing you may or may not see is that a payment is due.  Please double-check this item as many have said they have seen a zero percent (0%) interest rate but may have still had to make payments (as far as their online loan providers portal stated).  We want to make it very clear that if you are able we are highly advising you to continue to make your payments.   In a way, this isn’t to be looked at as “free money” (though close), but rather that you have the ability to eat into your principal for half of the year that you otherwise would not have had the opportunity to do so.  Paying into the principal is going to save you money in the long-term and shorten the life of the loan by a matter of at minimum 6 months (which is a big deal on a 10-year loan). 

The last thing the federal government did was allow your employer to actually pay up to $5,250 of your student loans on their dime.  This is beneficial for those employees that are still considered coveted but may be in a position such as a furlough. This can be a tough subject to approach depending on your companies situation, but it is worth asking in a tactful manner if you are able.  If they don’t have money to pay workers, it may not be the best time to ask – but everyone needs help and there is a light way to approach it. 

Lastly, student loans that are backed by the federal government will not reconvene with interest or payment until September 2020.  This is a big deal for many people – especially those that are struggling. However, if you are still gainfully employed and want to save even more money we highly suggest that you also look around at lower interest rates and if you can find a rate lower than currently given by your loan provider.

What Steps Do You Need to Take Next?

  1. Do you have a Federal or Private Loan (if Private, see link below)
  2. Go to your loan providers website
  3. Confirm 1) zero percent interest, and 2) that payments have been paused.  If not, please contact the provider to ensure that they are taking these steps.
  4. Continue to make payments (if able)
  5. Refinance (if you are able to find a lower interest rate and do not require any of the benefits federal loans offer, such as forgiveness)