0% Interest

The last two weeks have brought many changes to student loans. I have delayed publishing any information regarding these changes because the details of a policy was yet to be defined. COVID-19 has interrupted our lives and the dental profession has many unanswered questions regarding how we will move forward during and after this crisis. Many readers are aware that student loans held by the government have had their interest rates temporarily reduced to zero and there is an option to enter emergency forbearance for 60 days.

Readers should be aware that exiting forbearance is one of the eight events that trigger capitalization of outstanding interest. However, it appears that outstanding interest will not be capitalized when a borrower exits emergency forbearance during COVID-19 (according to FedLoan). FedLoan has changed its stance regarding outstanding interest and is now stating that any outstanding interest prior to March 13th, 2020 “may” be capitalized at the expiration of forbearance. You can learn more here: FedLoan has provided some clarification and outstanding interest will not be capitalized if the borrower enters and then exits emergency forbearance. You can learn more here: https://myfedloan.org/borrowers/covid

Borrowers who have seen a reduction in income and are pursuing PSLF or taxable forgiveness may want to consider requesting that their IDR payment be re-calculated instead of entering forbearance.

You should contact your servicer and request more information before taking any action.

Current students and new graduates, due to the current circumstances, the student loan course I created is now free for the rest of the year: https://embrasurespace.com/product/understanding-managing-and-repaying-student-loans-for-dentists/

[EDIT] Great Lakes and Fed Loan published different responses regarding how outstanding interest will be treated when exiting emergency forbearance. Great Lakes says: During this forbearance, no payments will be due. Until further notice from ED, interest will not accrue on your account. When we apply the coronavirus forbearance to any account, any unpaid interest that had accrued prior to the 0% interest rate reduction effective 3/13/20, may be added to your principal balance at the end of the forbearance. This is called capitalization, and it increases the overall amount you’ll have to pay on your loan.

This discrepancy highlights how important it is to contact your servicer prior to taking any action.