September 27th, 2013Student Loans
Excerpts from: The Clearpoint Blog
Submitted by Wanda Carter
Student loans are tough, and they present borrowers with heavy debt burdens after college. But while there are a growing number of options available to consumers, most student loan forgiveness programs and other repayment plans are only available to those with federal student loans. Borrowers who are having difficulty with private student loans, from lenders like Sallie Mae and others, have fewer options. Today we are going to take a look at the programs available to private student loan borrowers. We will analyze six of the top student loan servicers and give tips for how to pay off private student loans.
Note about the updates: Since we first wrote this post, more information about the top private lenders and their repayment programs has become publicly available. For instance, all our post originally said about Discover was that “Discover encourages struggling borrowers to call its ‘Repayment Assistance Department.’” We were vague because, well, Discover was vague too. But times have changed and the student loan crisis, the media coverage surrounding it, and government intervention have worked to create an environment of improved transparency and increased options for borrowers. As of February 2015, the post now contains new information about the three lenders that were originally listed here (Discover, Wells Fargo and Sallie Mae), along with details about other big private lenders. Most importantly, we’ve also added new guidelines presented by the Consumer Financial Protection Bureau. If you’re struggling to repay private loans, please be sure to read that section of the article, as it may have the biggest positive impact for you.
The Heart of the Private Student Loans Issue
Many of us know this by now, but it’s worth repeating. Federal student loans are well-regulated and have structured programs to help borrowers. It’s easy to find all of your federal student loan information (via www.nslds.ed.gov), and the interest rates and terms have historically been reasonable. Even when consumers do struggle or fall behind, there are numerous resources available, and these resources are guaranteed.
Private student loans are a bit more of a “crapshoot.” Maybe you got lucky and picked a lender who tends to be more forgiving. Or, maybe you picked one who refuses to make any modifications or adjustments. It’s hard to know until after the fact. In most cases, private student loans loans are already harder to pay due to higher interest rates, and when consumers fall behind they have no program or resource to help them re-establish their footing. We have already covered the best way to pay off student loans, but for many borrowers who are struggling, this method just isn’t realistic. For many, the payments are too challenging.
Of course, this issue has caught the interest of politicians and the Consumer Financial Protection Bureau. Consumers should be hopeful about the future of private student lending, but this “hope” is of little use to current borrowers.
There are Some Options
Thankfully, there are some options available for your private student loans. First, we will cover options that lenders offer, and then we will highlight some other resources.
Sallie Mae handed off most of its older private loans to Navient after its 2014 split into two arms, but it still services loans, while also offering new student lending products. As in the past, Sallie Mae doesn’t offer up much publicly accessible information about which options are available for struggling borrowers, but it does provide this call to action:
“If you are experiencing financial challenges, whatever the reason, at the first sign of a difficulty don’t ignore it. Call us at 800-4-SALLIE (800-472-5543). We know you don’t want to be in this situation, and we’re committed to working with you to help you get back on track.”
In addition, it mentions its forbearance program, which can be used in three-month intervals for up to twelve months. This is certainly helpful for those who need it, although interest does accrue and a collateral payment is required.
Below are also some programs that Sallie Mae has offered in the past. Again, it’s challenging to find reference to these, but if you are repaying loans to Sallie Mae or Navient, it may be worth it to ask about the availability of these programs.
- Graduated Repayment Period (GRP) – Sallie Mae offers a six-month grace period after graduation. During this time, a borrower is excused from making payments toward his/her loans. Traditionally, the borrower would then have to begin making monthly payments that include principal and interest. Under the GRP, the borrower only has to pay accrued interest for the first 12 months of repayment. This means that recent graduates have 18 months before being required to pay toward the principal.
Like with many repayment programs, this can lead to higher payments later and a more expensive total loan amount, but it helps consumers get on their feet after graduation. This is particularly important for those who struggle to find work.
Sallie Mae has some other programs as well. One of the most successful appears to be the 12-month rate reduction program:
- 12-month rate reduction – This program offers lower interest rates, as low as 1 percent, and sometimes includes a modification of the loan term. To qualify, borrowers must first make three consecutive on-time monthly payments at the reduced rate.
According to Sallie Mae, “Most participants successfully complete the program and return to current payments.” Sallie Mae also claims that it will extend the reduction period for some borrowers, based on employment status and other financial indicators. According to a letter from Sallie Mae to the CFPB, this program has a success rate of 78%.
Sallie Mae also offers reduced monthly payments, extended repayment schedules, and likely some less-advertised hardship programs. In their letter to the CFPB, they also state that they are in favor of rehabilitation programs for private loans that can help borrowers recover from default.
Navient, the sister company of Sallie Mae, now holds and manages many of the private loans that were previously managed by Sallie Mae. Unfortunately, Navient keeps information about private loan repayment close to its chest. In other words, options aren’t described in detail on its website or in any public forum. Instead, Navient advises, “If you have a private loan, contact Navient and your other loan servicers to find out what options are available.”
The good news, however, is that it appears that Navient does work to help borrowers who show the initiative to call in. According to a Huffington post article from August 2014, “More than 28 percent of loans serviced by Navient are enrolled in repayment plans tailored to borrowers’ earnings, making the company the second-biggest user of income-driven repayment plans.” What’s unclear is the percentage of these borrowers who are offered income-based plans for their private loans, and the chances are that the number is zero or very close to zero. Again, the transparency and information provided to private loan borrowers is disappointing.
Navient does, however, make a point to refer clients to credit counseling. This is a good sign that they understand the fact that student loan debt is often just a part of a larger debt crisis. By working to get credit card debt under better control, borrowers will likely improve their overall financial situations and free up more money for their student debt. However, what would be even more helpful are innovative programs designed to help repay private loans, so we hope Navient makes this information more available soon.
Wells Fargo Student Loans
For starters, Wells Fargo appears to have a generous forbearance policy for its private student loan borrowers. Students who are interning, in a residency or fellowship, or enrolled less than half-time as a student might be able to qualify.
However, the bank has also disclosed quite a few short- and long-term repayment options for struggling borrowers. The main options include:
- An extended grace period of up to six months
- Short-term payment relief (up to two months) for borrowers with an on-time record
- Additional payment options if you are already past due
Some of these are more vague than others, but it is clear that there are some options. The other, more significant program is relatively new. It’s called the Private Student Loan Modification Program (PSLM) and is the first of its kind to be publicly disclosed. The program allows certain borrowers to qualify for an interest rate reduction to make their payments more realistically affordable, based on their income.
Here is additional information from the official press release:
“Through the program, Wells Fargo private student loan customers experiencing a hardship will have their financial situation reviewed on an individual case-by-case basis to determine eligibility for a short- or long-term loan modification, as appropriate. If eligible, Wells Fargo will lower the customer’s interest rate to achieve a student loan payment that is determined to be affordable based on the customer’s income level.”
Borrowers interested in this program or others offered by Wells Fargo are encouraged to call in at 1-866-878-1083.
Discover Student Loans
Discover offers a variety of options to borrowers. One of the most basic options is deferment, and Discover extends deferment options to members of certain occupations, including those who are:
- On active military duty (up to 3 years)
- In public service with certain organizations (up to 3 years)
- In a health professions residency program (up to 5 years)
In addition, they offer an extended grace period, which is simply a three-month addition to your curernt grace period. Even if you’ve passed the grace period and entered repayment, you may use this if you are still in the first three months of repayment and are less than 60 days delinquent.
The other options include a payment extension (the ability to catch up on missed payments), reduced monthly payment, forbearance and a hardship program that involves an interest rate reduction. You can read more about the specifics of these programs and how to qualify, but be sure to read the guidelines from the CFPB below, too.
In addition to these traditional programs, Discover also has plans to launch a formal student loan repayment assistance program later this year. The details aren’t publicly available, but the program could be very similar to Wells Fargo’s new program mentioned in this article.
For starters, read this Wall Street Journal article which covers some under publicized programs being offered to borrowers at Discover and speculates about upcoming repayment options. If you are a struggling Discover borrower, you may want to call in and inquire about these programs immediately.
PNC’s main private student loan product is called the “PNC Solution Loan.” One nice perk about this loan is that the standard repayment is a 15-year program, which makes monthly payments more manageable than its 10-year counterparts (although it’s also more expensive in the long-term). PNC doesn’t list a lot of repayment options on its website, other than some generic information, such as “Outstanding debt will be forgiven upon the death of the borrower.”
To dig deeper, I used the site’s chat feature in order to speak with a customer service rep and learn about additional programs or repayment options. What I gathered was that there is a standard six-month grace period, but that PNC does have an extended grace period of six additional months. It wasn’t clear if this had to be used all at once, or could be used on a month-by-month basis as needed. There is also a forbearance option, and all available forbearance time must be used before PNC will work with the borrower in a modification program. Lastly, I was told that there aren’t any reduced payment or reduced interest programs (although perhaps there is something similar that isn’t publicized but is offered after all forbearance is used).
It should be noted that older PNC loans are managed by AES and Great Lakes. A customer service rep who spoke with me on the phone recommended reaching out to those agencies to learn more about particular programs that may be available.
Citizens Bank (RBS)
Like PNC, RBS also offers a 15-year term loan, which again offers a lower monthly payment at the cost of paying more in interest. Beyond the basic repayment options (which in this case are essentially loan types) of “immediate repayment,” “interest only repayment” and “deferred repayment,” the chat specialist I spoke to wasn’t able to give me much information. She did, however, give me a number to call, but the representative on the phone only informed me of the same three options, along with what sounded like standard forbearance and grace period programs.
This one is worth some additional research, and we will update the post if we receive any new information.
The #1 Rule for How to Pay off Private Student Loans
We have seen that private student loan companies offer a variety of repayment options that you may not have known about. And, obviously, the list here isn’t comprehensive (we’ve just made an effort to cover the largest institutions). While some lenders publish their repayment options publicly, others keep this information private. Luckily, more and more has become public since our first version of the article in 2013. While withholding information makes it slightly more difficult to access, it doesn’t mean that borrowers should give up.
Instead, it means that the most important rule about paying off private student loans is that you need to communicate with your lender! As we have shown, most lenders are willing to help you and might have some sympathy for your economic difficulty. But the reality is that they won’t give you this sort of help if you don’t ask for it. We encourage you to call early and often during your period of financial difficulty and to explain your situation thoroughly when you ask for help. You will also want to leverage paper mail, in accordance with the the CFPB’s guidelines (keep reading).
In addition to updates from the financial institutions, the CFPB has also taken a tougher stance and provided more guidance since we first wrote our article. For starters, the CFPB has echoed concerns that we’ve heard firsthand here in the blog comments about the resistance from lenders to actually help remedy borrowers’ situations and present tangible options. Here’s some commentary from the CFPB:
“For example, our analysis of complaints reveals that many of you tried to find out more information by calling your lender or servicer, but received conflicting or inaccurate information as you were bounced between call center staff. Many of you told us how you were provided no option at all, driving you into default, even though a reduced payment plan might be in the best interest of both you and your lender.”
What’s particularly interesting here is that the CFPB accurately points out that a hardship program of some sort would be mutually beneficial, which has us all scratching our heads as to why the programs are so elusive. One solution to this predicament might be to arm yourself with even more information when you make contact with your lender. Having the ability to present more concrete evidence of your financial standing could help you make a stronger case. The CFPB says:
“Some student loan companies have told us that they may ask for recent pay stubs or a bank statement to verify income and expenses. Consider including these documents with your request, which you can mail or send through your private student loan servicer’s website after you login.”
Having these documents handy could pay big dividends, and offering them before they are requested could also get the conversation started.
Another important point is to keep in mind the power of physical mail. It’s hard to believe that even in the modern times we live in today, communicating with lenders and other financial institutions is typically most effective when done through paper mail. This is particularly challenging for millennials, who prefer electronic communication, but ironically they are the group most negatively impacted (and frustrated) by this private student loan debacle.
Overcome this concern and reach out via paper mail using this letter provided by the CFPB: Private Student Loan Hardship Letter.
Download the letter, fill out the appropriate information and send it to your servicer. Keep scanned copies of everything you send. This could be a powerful tool in getting a response, including some options that have not been presented to you via telephone. If you try this approach, please come back and let us know how things turn out, by adding a comment below.
Other Resources for Private Student Loans
If you are still struggling, there are two more options to consider. First, if you feel that your loan servicer has broken the agreement or terms of your loan, you can contact the Consumer Financial Protection Bureau. If you file a formal complaint with the CFPB, they may be able to help.
Secondly, you should leverage the flexibility of your federal student loans by enrolling them in repayment programs. In most cases, this will allow you to have lower monthly payments for your federal loans, and this will free up more money to put toward Sallie Mae or other private loans. Ideally, this will help you pay off your private student loan debt completely, and then you can focus on the federal loans.
One of the best ways to learn about federal student loan programs is by talking to a student loan counselor. Clearpoint offers this service, and a counselor will help identify your best repayment options, review your budget and give insight into your credit. Learn More.
Where do you go from here?
If you have private student loans, there are three key takeaways you should remember:
- Communicate with your lender(s) regarding your financial situation and use the CFPB letter.
- Get familiar with the available hardship programs offered by your lender, and contact the CFPB if the lender breaks your agreement.
- Leverage the flexibility of your federal student loans.
We hope you can put these strategies to work. For more information or help with your student loans, call us at 1-800-675-7601 or click here to schedule a student loan counseling session.