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. Through subsequent executive orders signed by Presidents Trump and Biden, the interest suspension was extended through June 30, 2023.1 The interest suspension applies 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 are in default. Interest does not accrue while loan payments are 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.
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 and are primarily based on estimates 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. Principal repayment is classified as a financial transaction, rather than a payment associated with current period production, and is excluded from the NIPAs.
The downward adjustment to personal interest payments for federally-held student loans is 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, 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 makes 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.
1The first extension was signed by President Trump on August 8, 2020 and extended relief through December 31, 2020, and was later extended through January 31, 2021 by the Department of Education on December 4, 2020. The second extension was signed by President Biden on January 20, 2021 and extended relief through September 30, 2021. The third extension was signed on August 6, 2021 and extended relief through January 31, 2022. The fourth extension was signed on December 22, 2021 and extended relief through May 1, 2022. The fifth extension was signed on April 6, 2022 and extended relief through August 31, 2022. The sixth extension was signed on August 24, 2022 and extended relief through December 31, 2022. The seventh extension was announced on November 22, 2022 and extended relief through June 30, 2023.