Student Loan Interest Freeze: What You Should Know and Who's Eligible

Find out what the student loan interest freeze is and to what borrowers it applies.

Student Loan Interest Freeze: What You Should Know and Who's Eligible
Alexander Grey

There’s been a lot of confusion about and clarification needed in regards to President Biden’s student loan forgiveness announcement. Which student loans are eligible for forgiveness? How much of the outstanding student loan debt will be forgiven? What other factors are at play in Biden’s student loan forgiveness announcement?

One of the more common questions about Biden’s student loan forgiveness is the question of a student loan interest freeze. Amid the commotion surrounding the student loan forgiveness announcement, some murmurs about a student loan interest freeze have been heard, but the details have sometimes not come to the surface. Here, we’ll break down what’s going on with the student loan interest freeze that is part of Biden’s student loan forgiveness push.

Read on to find out about the student loan interest freeze, whether it applies to you or not, and how it can help make paying back your student loans easier.

What Is the Student Loan Interest Freeze?

So, initially in response to the Covid-19 pandemic, Federal Student Aid (FSA) — an office of the Department of Education (ED) — had announced a pause on student loan repayments. The FSA also announced that student loan interest rates would be set to 0% — a student loan interest freeze. But for which student loans is this student loan interest freeze applicable to?

The student loan interest freeze applies to eligible federal student loans. For those with eligible student loans, the student loan interest freeze, along with the student loan payment pause, has been extended through December 31, 2022. This student loan interest freeze and repayment pause originally began back on March 13, 2020, when the pandemic was making its socio-economic impact felt for the first time in force. Fortunately for those with eligible federal student loans, this student loan interest freeze was activated and has been continued automatically, so you don’t have to apply or reach out to get a 0% interest rate.

Student Loan Interest Will Not Capitalize in Most Cases

Another important aspect of the student loan interest freeze involves interest capitalization. Interest capitalization occurs when unpaid interest on a loan is added to the principal amount of your student loan. In normal cases, when you don’t pay the interest on your federal student loan as it accrues, then your lender might capitalize the unpaid interest. 

The good news for most eligible borrowers is that unpaid interest will not capitalize during the student loan payment pause and the non-capitalization will continue through July 1, 2023. When interest capitalizes, it gets added to your principal balance. Due to the Covid-19 emergency, the FSA asked loan providers to rescind student loan interest capitalization that has an effective date after March 13, 2020. If your student loan is eligible for non-capitalization, your loan provider will reach out to you if they are reversing your capitalized interest.

If you’re still in school, then your federal student loan interest rate was reduced to 0% as of March 13, 2020. However, the student loan interest freeze is set to end on December 31, 2022, after which your regular student loan interest rate will apply again.

Which Loans Are Eligible for Student Loan Interest Freeze?

Arguably, the biggest downside to Biden’s student loan forgiveness program is that it doesn’t apply to private student loans. Many high school and college students, and college graduates, got their student loans through private lenders, not through federal programs. These borrowers are, unfortunately, not eligible for the student loan payment pause or student loan interest freeze.

Below is a breakdown of which student loans are eligible for the student loan interest freeze and which are not:

Eligible Student Loans

Not Eligible Student Loans

Direct Loans (defaulted and non-defaulted)

Private student loans

Federal Family Education Loan (FFEL) Program loans held by ED (defaulted and non-defaulted)

Non-defaulted FFEL Program loans not held by ED

Federal Perkins Loans held by ED (defaulted and non-defaulted)

Federal Perkins Loans not held by ED (defaulted and non-defaulted)

Defaulted HEAL loans

Non-defaulted HEAL loans

Defaulted FFEL Program loans not held by ED

It’s important to note that some FFEL Program and HEAL loans are held by commercial lenders. In addition, some Perkins Loans are held by the college you attended. If you find that your student loan is not eligible, you can contact your servicer to ask if there are any benefits available.

But again, the biggest drawback is that private student loans are not eligible for the payment pause or student loan interest freeze. The ED has no legal authority over private student loans, hence, Biden’s student loan forgiveness plan and other Covid-19 student loan relief programs don’t apply to private loans.

When Is the Student Loans Freeze Over?

Originally, the student loans freeze — including a pause on student loan repayment, a student loan interest freeze, and student loan default — was set to end after August 31, 2022. With Biden’s announcement on August 24, the student loan interest freeze has been extended through the end of the year. After December 31, 2022, the student loan interest freeze will end and normal interest rates will return. 

According to the government announcement, the current extension on the student loan interest freeze will be the last one. Thus, the upside is that current student loan borrowers have a little extra time to enjoy the 0% interest rates on federal loans due to the Covid-19 student loan interest freeze relief program. The downside, however, is that, as of right now, this student loans freeze will be the final extension.

If you are one of those borrowers who have privately-held Federal Family Education Loans (FFEL), school-sourced Perkins loans, and alternative loans lent by banks and other entities, then this student loan interest freeze does not apply to you. However, if you are one of these ineligible borrowers, you could roll them into a federal Direct consolidation loan in order to benefit from the student loan payment pause and student loan interest freeze.

The Bottom Line on the Student Loan Interest Freeze

The student loan extension on pausing repayments and the continuing of the student loan interest freeze is a major boon to those borrowers holding eligible federal student loans. Who doesn’t want to enjoy another four months of having a 0% interest rate on their student loans? Of course, all those student loan borrowers who got theirs from private lenders are not eligible for the government-announced pause of loan repayments and the student loan interest freeze. This dichotomy is an unfortunate part of the way the US government has to contend with private business, and in general, cannot interfere with the latter without serious legislation. However, if you have the option of combining your loans into a federal Direct consolidation student loan, then you can indeed benefit from the extension on the student loan interest freeze.