For private student loan borrowers facing high, inflexible monthly payments in times of unemployment or other financial hardships, relief may be on the way.
Two of the biggest private student loan lenders — Wells Fargo and Discover Financial Services — are introducing loan modification programs to help financially struggling borrowers successfully repay their student loans to avoid falling behind and even further into debt.
These new loan modification programs may also address many of the complaints surrounding private student loan lending.
Private student loan lenders have been negatively viewed for an overall unwillingness to rework the terms of existing loans to aid borrowers struggling with repayment.
In October, the Consumer Financial Protection Bureau reported a 38 percent increase in private student loan complaints last year, most of which detail a lack of repayment options and flexibility, according the annual Student Loan Ombudsman report.
But with the banks’ new programs, the student loan straitjacket will pop a buckle looser.
The new modification programs offered by Wells Fargo and Discover have similar features to the options that have long been available to struggling federal loan borrowers, such as income-based repayment plans and temporary deferment or forbearance periods for those who qualify. Such options help borrowers plan ahead and manage their debt now before the costs become too much to handle later.
For example, under Wells Fargo’s new program, if a borrower is in a long-term unemployment or emergency medical situation that temporarily disrupts income flow, he or she can apply to have their situation reviewed for loan modification eligibility, according to the Wells Fargo news release. Borrowers can do so before their accounts fall into delinquency too, which can save even more money –and protect credit — in the long run.
If eligible, the bank may lower a loan’s interest rate to establish a more affordable monthly payment amount based on income level. Rates may be reduced to as low as 1 percent, depending on the borrower’s situation. Other relief options include payment relief for up to six months and plans to bring a delinquent account current.
Next year, Wells Fargo will also offer up to five extra years of loan repayment time for those who need additional relief. The new program applies to Wells Fargo’s $11.9 billion of private student loans, according to The Washington Post.
Discover Financial Services, which holds $8.3 billion in private student loans, has also announced plans for a new student loan restructuring plan, to be released in early 2015. Lower interest rates and even partial debt forgiveness may be considered for those facing the most hardship.
Wells Fargo and Discover Financial Services join two other private student loan lenders that have begun to explore loan modification programs. PNC Financial Services Group began temporarily reducing some private loan borrower’s interest rates to as low as 0.6 percent for a maximum of 18 months earlier this year. Sallie Mae has offered struggling borrowers private loan modification options since 2009.
News of these private loan modification programs comes at a good time amid reports of increasing average student loan debt balances across the country.
The Institute for College Access and Success (TICAS), in its Student Debt report published this month, found that 69 percent of 2013 college graduates owed an average of $28,400, up from 2012’s $27,850 average. Private loans made up approximately one-fifth (19 percent) of the class of 2013’s debt. Additionally, graduates faced relatively high levels of unemployment or underemployment last year, according to the 2014 TICAS student debt report.
Based on these findings, TICAS officials have recommended a number of ways to reduce the growing student loan debt burden, including keeping loan payments manageable and reducing expensive, typically inflexible private loan borrowing, two areas that these new private loan modification programs may also address.