On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act was signed into law. The Act provided for the suspension of all payments due on certain categories of federally-held student loans beginning on March 13, 2020.
The 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 all federal student loans made through the Federal Family Education Loan (FFEL) Program that were in default. Interest did not accrue while loan payments were suspended.
Student loan interest payments are captured as part of personal interest payments, a component of personal outlays, available monthly on National Income and Product Accounts (NIPA) Table 2.6 – Personal Income and Its Disposition, line 30.
Borrowers retained the option to continue making payments during the suspension period. If they chose to do so, 100 percent of the payment was applied to principal. Principal repayment is classified as a financial transaction, rather than a payment associated with current period production, and is excluded from the NIPAs.
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 were prepared and removed from that total during the forbearance period to account for this provision of the CARES Act, and are primarily based on estimates of the covered student loan debt and its average interest rate published by the Department of Education.
Following a sequence of extensions, the student loan forbearance program concluded on August 31, 2023, after which interest accruals resumed. BEA ceased implementing a downward adjustment to personal interest payments beginning with estimates for September 2023 to correspond with the resumption of interest accruals. Borrowers were required to resume payments on their principal balances in October 2023.
Since the CARES Act was passed, the Department of Education approved multiple programs to forgive student loan debt held by varying classes of borrowers. As a result of these forgiveness programs, the magnitude of the step-up in personal interest payments in September 2023 is less than the amount of the reduction in March 2020 that reflected the original provisions of the CARES Act.
The downward adjustments to personal interest payments for federally-held student loans that began in March 2020 as well as the step-up in September 2023 personal interest payments are also reflected in monetary interest received by the federal government. Accordingly, since gross domestic product (GDP) and gross domestic income (GDI) are invariant to interest payments and receipts of the personal and government sectors, they were not affected by this program.
The CARES Act also granted the right to mortgage forbearance for homeowners with federally backed mortgages who experienced financial difficulties resulting from the COVID-19 pandemic. In contrast to federally-held student loans, the Act made no provision for the suspension of mortgage interest accrual. The NIPAs record mortgage interest on an accrual basis; alterations to payment timing due to deferrals or forbearance do not affect the estimate and as a result no adjustments were made. Mortgage interest is a subtraction in the calculation of rental income of persons and is not included in personal interest payments.