Those with federal student loans will have to start making monthly payments again on May 1. At the start of the covid-19 pandemic the Department of Education suspended student loan repayments and interest, which have since been extended five times.
That bit more leeway however has not been extended to those with private student loans when the CARES Act was passed in March 2020. These loans work like home or car loans and it is up to the borrower to negotiate with the financial institution that issued the loan for relief.
Although they represent a minority of all student loans, private student loans attract more complaints
Private student loan debt has grown over the years, growing at just over 7% per year. At the start of the covid-19 health emergency, overall outstandings had increased by 71% in just over a decade, outpacing growth in car loans, credit cards and mortgages.
Currently, private student loans are estimated to be around 8%, just over $131 billion, of all outstanding student loan debt, now over $1.7 trillion. According to 2021 data, despite the decline in total complaints, private student loan complaints received by the Consumer Financial Protection Bureau fell from 28% in 2020 to 36% last year.
Navient, which recently reached an agreement with attorneys general from 39 states, received the most complaints in 2021. The $1.85 billion settlement includes funding to repay legal fees, compensate borrowers and fully forgive others’ debt.
Some states have reached an agreement to help private student borrowers
Some borrowers in ten states can take advantage of an agreement negotiated by a coalition of state attorneys general with several private lending companies. Borrowers who have had difficulty making their payments due to the complications imposed by the covid-19 crisis could potentially get up to 90 days forbearance. To be eligible, you must live California, Colorado, Connecticut, District of Columbia, Illinois, Massachusetts, New Jersey, New York, Vermont, Virginia or Washington.
The agreement applies to private student loans through the federal Family Student Loans program. You will need to check with your state’s student loan forbearance or forgiveness program and your loan officer must participate in the agreement. Your state may offer other forms of covid-19 relief, it is always best to check with local agencies.
A new report says up to $50 billion in debt, colloquially known as private student loans and held by 2.6 million borrowers, could actually be erased in bankruptcy court. https://t.co/pKmMPFiK8l
— MarketWatch (@MarketWatch) January 21, 2022
Remedies for Borrowers with Private Student Loans
Like any other private loan, borrowers should speak with their creditor to get debt relief. In most states, the borrower is on their own if they need private student loan relief due to hardships they have experienced due to the covid-19 pandemic.
The Federal Trade Commission offers a guide to dealing with debt. General recommendations are to establish a payment plan with your creditor by presenting your file and showing that you intend to repay what you owe. You can also consider refinancing the loan to get a better interest rate and lower monthly payments. Declaring bankruptcy is an option that can have long-term consequences for your credit rating, to take out future loans and when applying for a job.