Over the past year, more than 20 million federal student loan borrowers have been able to pause their payments to cope with pandemic-induced financial stress — a postponement that President Joe Biden recently extended through September 2021.
But those who have private student loans? Not so much.
Private student loans represent about 8% of total education debt, according to MeasureOne, which tracks data on private student lending. Not only are these borrowers left out of the payment pause granted to federal borrowers, they’re also rarely included in ongoing conversations about loan forgiveness.
The only mention of private student loan borrowers in relief proposals has been as part of the Heroes Act Oct. 1 update — it included a measure that would have paid off $10,000 of loan debt for economically distressed private student loan borrowers. However, it didn’t find traction then and didn’t make the December 2020 relief package or Biden’s most recent proposal.
Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, says borrowers shouldn’t expect relief to come from Congress.
“I think the moment to help those borrowers unfortunately has sort of passed,” Mayotte says, though she adds that she’s not hearing from troubled private loan borrowers any more often than usual.
That doesn’t mean private student loan borrowers aren’t now facing headwinds or hoping for some kind of relief. But federal loans fall under the purview of the federal government, and any relief there affects far 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 stands a better chance of happening. He says private student loan debt forgiveness 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.
One change that might help: bankruptcy reform
Mayotte says she thinks there’s “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 rulings and a bankruptcy reform proposal by Biden indicate a shift is already happening toward making it easier to dismiss student loans in bankruptcy.
Currently, courts have high standards for proving “undue hardship” that would result in loans — whether federal or private — being discharged. Pursuing bankruptcy is also cost-prohibitive for many borrowers to attempt without the security of knowing they can win.
But it’s harder to prove undue hardship with private loans since they don’t have as many safeguards as federal loans do, such as income-driven repayment.
Fewer private borrowers seeking relief
Private student loans, unlike federal loans, are underwritten using traditional credit standards, and over the years their default rate has been much, much lower — less than 2% annually, according to a 2019 MeasureOne report.
At the start of the pandemic, private lenders offered borrowers experiencing financial hardship short-term emergency forbearance or deferment or a temporary lower payment amount.
Relatively few borrowers took advantage of them. MeasureOne found fewer borrowers were using forbearances during the third quarter of 2020 (July, August and September) compared with the previous three months (3.68% versus 7.04%, respectively). It’s worth noting that many of the special forbearances were available in 90-day increments only.
A NerdWallet survey of 30 private lenders found virtually all requests for short-term forbearance during 2020 were granted.
- Ascent said 2.8% of its student loan portfolio requested an emergency forbearance and 100% of those requests were approved.
- Among Funding U borrowers, less than 5% requested a forbearance and 100% of those requests were approved.
- Splash Financial reported 1.7% of its borrowers requested a special forbearance and 93% were approved (borrowers were rejected if they didn’t provide requested documentation).
Most lenders who responded to NerdWallet’s questionnaire said they weren’t currently reporting delinquent accounts to collections, and among those who were, the reporting rates were low. For example, Ascent reported 0.9% of its portfolio had gone to collections.
Some of these special relief options are continuing into 2021, but several lenders have already sunsetted their programs.
In those cases, borrowers must rely on existing options. That usually means requesting regular forbearances lenders already offer, which carry limits (typically around 12 months, but some offer double that). If you have private student loans, contact your lender to find out what it offers.
For private borrowers who are facing financial trouble, this relief may not be enough.
Seth Frotman, executive director of the Student Borrower Protection Center, a nonprofit based in Washington, D.C., questions whether private lenders are doing their part.
“Companies are making all of these promises about supposed help in the face of the pandemic, and we have heard time and again from borrowers that they’re getting bad information, no information, conflicting information or the total runaround about how you can get access to these programs,” Frotman says.
More From NerdWallet
- How to Get Student Loan Relief During the Coronavirus and Beyond
- Private Student Loan Relief During the Pandemic
- Joe Biden’s Student Loan Plan: What’s Happening Now
Anna Helhoski writes for NerdWallet. Email: firstname.lastname@example.org. Twitter: @AnnaHelhoski.