Over the past year, more than 20 million federal student loan borrowers have been able to suspend their payments to deal with financial stress induced by the pandemic – a delay that President Joe Biden recently extended until September 2021.
But those who have private student loans? Not really.
Private student loans make up about 8% of total student debt, according to MeasureOne, which tracks data on private student loans. Not only are these borrowers excluded from the payment break afforded to federal borrowers, they are also rarely included in ongoing conversations about loan cancellation.
The only mention of private student loan borrowers in the relief proposals was made as part of the October 1 Heroes Act update – it included a measure that would have paid off $ 10,000 in debt. loan for economically troubled private student loan borrowers. However, he didn’t find traction at the time and didn’t make the December 2020 back-up plan or Biden’s most recent proposal.
Betsy Mayotte, president and founder of the Institute of Student Loan Advisors, said borrowers shouldn’t expect Congress to help.
“I think the time to help these borrowers is sadly over in a way,” says Mayotte, although she adds that she doesn’t hear from struggling private borrowers more often than usual.
This doesn’t mean that private student loan borrowers aren’t facing headwinds or hoping for some sort of relief. But federal loans fall under the jurisdiction of the federal government, and any relief affects many more borrowers.
That’s why Robert Kelchen, associate professor of higher education at Seton Hall University in South Orange, New Jersey, says federal student loan forgiveness is more likely to happen. He says private student loan debt cancellation is “a possibility,” but unlikely.
“Most people with private student debt also have federal student debt, so [private loan borrowers] probably wouldn’t get anything forgiven, ”Kelchen says.
A change that could help: bankruptcy reform
Mayotte says she believes there is “good potential in the next two years” for a change in bankruptcy rules for student loans, adding that an appetite to do so exists on both sides of the aisle.
Recent court decisions and a Biden bankruptcy reform proposal indicates that a change is already happening to make it easier to reject student loans in bankruptcy.
Right now, courts have high standards for proving “undue hardship” that would cause loans to be canceled – whether federal or private. For many borrowers, pursuing bankruptcy is also prohibitive for many borrowers without the security of knowing they can win.
But it’s harder to prove undue hardship with private loans because they don’t have as many collateral as federal loans, like income-tested repayment.
Fewer private borrowers seeking relief
Private student loans, unlike federal loans, are underwritten by traditional credit standards, and over the years their default rate has been much, much lower – less than 2% per year, according to a 2019 report by MeasureOne.
At the start of the pandemic, private lenders offered borrowers facing financial hardship with a short-term emergency forbearance or postponement or a temporary lower payment amount.
Relatively few borrowers have taken advantage of it. MeasureOne found that fewer borrowers were using forbearances in the third quarter of 2020 (July, August, and September) compared to the previous three months (3.68% vs. 7.04%, respectively). It should be noted that many of the special abstentions were only available in 90-day increments.
A NerdWallet survey of 30 private lenders found that virtually all short-term forbearance requests in 2020 were granted.
- Ascent said 2.8% of its student loan portfolio requested emergency forbearance and 100% of those requests were approved.
- Among Funding U borrowers, less than 5% requested forbearance and 100% of those requests were approved.
- Splash Financial reported that 1.7% of its borrowers requested special forbearance and 93% were approved (borrowers were rejected if they did not provide the requested documents).
Most of the lenders who responded to NerdWallet’s questionnaire said they do not currently report overdue accounts to collections, and among those who do, reporting rates are low. For example, Ascent said that 0.9% of its portfolio went to collections.
Some of these special relief options continue until 2021, but several lenders have already terminated their programs.
In these cases, borrowers should rely on existing options. This usually means asking for regular abstentions that lenders already offer, which have limits (usually around 12 months, but some offer double). If you have private student loans, contact your lender to find out what they offer.
For private borrowers facing financial difficulties, this relief may not be enough.
Seth Frotman, executive director of the Student Borrower Protection Center, a Washington, DC-based nonprofit, wonders if private lenders are doing their part.
“Businesses are making all these promises about supposed pandemic help, and we’ve heard time and time again from borrowers that they get the wrong information, no information, conflicting information, or the full round of how you can. access those programs, ”says Frotman.
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Anna Helhoski writes for NerdWallet. Email: [email protected] Twitter: @AnnaHelhoski.