U.S. President Donald Trump recently announced an interest waiver on student loans in response to the coronavirus, or COVID-19.

And while most experts panned the announcement, criticizing it as not doing enough to help borrowers, Wells Fargo analysts argue that “while this measure may not ease the near-term burden for those who are still able to meet monthly payments, it will be a boost for households that are negatively impacted.”

For instance, borrowers who lost their job amid the pandemic can request for their debt to be put on forbearance or apply to lower their income-based repayment without any interest penalty. Usually, even when a loan is put into forbearance, interest continues to accrue and is added to the overall balance.

The policy “will cushion the expected blow to personal consumption expenditures” from the coronavirus “as it will allow households with student loan debt to push pause on payments with penalty,” Wells Fargo analysts wrote.

While the interest waiver is technically automatic, in that borrowers don’t need to do anything to qualify while loan servicers modify their systems on the back end, the lack of communication or guidance has pushed startups like D.C.-based Savi to launch a free tool for borrowers to see what options they have.

For those who aren’t pursuing forbearance, “the interest waiver will cause the full amount of any loan payment to be applied to the principal balance,” Savingforcollege.com Publisher and VP of Researcher Mark Kantrowitz told Yahoo Finance. “That will not yield any immediate financial relief, since the loan payments will be unchanged, but will reduce the borrower's debt long-term.”

‘You still have to pay the principal’

There are more than 43 million Americans with $1.5 trillion in student loan debt, with $1.3 trillion of that total pile being federal loans. The average interest rate on federal student loans are between 4.53% and 7.08%.

And all things considered, the savings from the interest rate waiver may not add up all that much.

“You still have to pay the principal,” Kantrowitz stressed. “So waiving interest might be like adding an additional $20 payment to principal per month for each $10,000 in student loan debt.”

He noted that cutting the interest rates on a federal student loan from 4.529% to 0% and then recalculating the total balance based on the loan’s principle and interest payment would reduce the monthly payment by about 20% on a 10-year term and about a third on a 20-year term.

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Aarthi is a writer for Yahoo Finance. She can be reached at [email protected]. Follow her on Twitter @aarthiswami.

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