On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act was signed into law. The Act provides for the suspension of all payments due on certain categories of federally held student loans for the period March 13, 2020 through September 30, 2020. On August 8, 2020 President Trump signed an executive memorandum extending the Act's suspension of interest payments through December 31, 2020. On January 20, 2021, President Biden signed an executive order to further extend the interest suspension until September 30, 2021.The original interest suspension applied to Direct Loans (Stafford Loans) and Federal Family Education Loans (FFEL) in non-default status that were owned by the Department of Education at the time of the Act's ratification. On March 30, 2021, the extended interest payment suspension was expanded to include all federal student loans made through the Federal Family Education Loan (FFEL) Program, including those in default. Interest does not accrue while loan payments are suspended.
The National Income and Product Accounts (NIPAs) record student loan interest payments as part of personal interest payments, a component of personal outlays. Monthly measures of personal outlays and personal interest payments are available in NIPA) Table 2.6 – Personal Income and Its Disposition, line 30.
For current-quarter and monthly statistics, BEA prepares estimates of personal interest payments as the product of total non-mortgage consumer credit outstanding and a weighted average interest rate on that debt. Separate estimates for personal interest paid on federally-held student loans have been prepared and removed from that total beginning with March 2020 to accurately account for this provision of the CARES Act. The estimates are primarily based on measures of the covered student loan debt and its average interest rate published by the Department of Education.
Borrowers have the option to continue making payments during the suspension period. If they choose to do so, 100 percent of the payment is applied to principal. As principal repayment is not considered current period production, it is classified as a financial transaction and is excluded from the NIPAs.
The downward adjustment to personal interest payments for federally-held student loans is also reflected in measures of monetary interest received by the federal government. As gross domestic product (GDP) and gross domestic income (GDI) are invariant to interest payments and receipts, they will not be affected by these changes.
The CARES Act also grants the right to mortgage forbearance for homeowners with federally backed mortgages who are experiencing financial difficulties resulting from the COVID-19 pandemic. In contrast to federally-held student loans, the Act does not suspend the accrual of mortgage interest. The NIPAs record mortgage interest on an accrual basis; as such, alterations to the timing of interest payments due to deferrals or forbearance do not affect the NIPA measures. Mortgage interest is a subtraction in the calculation of rental income of persons and is not included in personal interest payments.