Democratic lawmakers are calling on private student lenders to offer debt relief to borrowers amid the coronavirus, or COVID-19, outbreak.
In a series of letters to lenders — from Navient to LendKey to the Pennsylvania Higher Education Assistance Agency — Senators Elizabeth Warren (D-MA), Sherrod Brown (D-OH), Edward Markey (D-MA), Kamala Harris (D-CA), Brian Schatz (D-HI), Dick Durbin (D-IL), Chris Van Hollen (D-MD), Cory Booker (D-NJ), Mazie Hirono (D-HI), Tina Smith (D-MN), Bernie Sanders (I-VT), and Amy Klobuchar (D-MN) implored them to help borrowers through the financial crisis.
“In light of the global public health emergency caused by the novel coronavirus (COVID19) pandemic … we write to request information about what steps your company is taking to mitigate the financial burden of your company’s private student loans during this crisis … [and] urge you to take specific steps to provide immediate relief to your company’s private student loan borrowers affected by COVID-19,” they wrote on Tuesday.
They noted that the Global Financial Crisis in 2008 had resulted in student loan borrowers being “hit particularly hard due to rising college costs during a historically weak job market,” and hence “millions of private student loan borrowers never fully recovered from the last economic crisis, and they now face another financial disruption when they can least afford it.”
‘Cancel or discharge as many delinquent loans as possible’
Private student loan debt forms a fraction of the $1.5 trillion in outstanding loans held by 43 million Americans (7.7% in 2019), but it’s still considerable: More than $100 billion is in the private student loan market, according to one estimate.
While the stimulus package brought some relief to borrowers — from allowing a 6-month freeze on payments to refunding those who had tax refunds or wages garnished by the government — it didn’t contain the same benefits for Americans holding private student loans.
"Though federal student loans make up much of the student loan lending market, private loan companies should work in good faith with their borrowers and offer relief — including temporary suspension of payments without penalties, fees, and consequences,” Center for Responsible Lending Director of Federal Advocacy Ashley Harrington told Yahoo Finance. “Private student loan companies must do more to offer relief so borrowers can weather this storm."
With private borrowers left out, the senators stated: “We are deeply concerned that without aggressive action, millions of private student loan borrowers, who currently experience some of the riskiest terms and conditions of all student borrowers, will be pushed to the brink of economic devastation as a result of COVID-19.”
The senators demanded the following actions:
The senators urged the student loan companies to “cancel or discharge as many delinquent loans as possible” during the coronavirus outbreak, especially for this “who have filed for bankruptcy or who are otherwise in clear financial distress that will inhibit their ability to ever fully repay their loans.”
The senators also called for an immediate halt to all involuntary debt collection efforts, “including any lawsuits against borrowers who have defaulted or are delinquent on their loans.”
The senators also wrote that private student loan borrowers should be able to suspend payments “without fees or consequence,” and that this should be automatic.
Furthermore, they asked for companies to “permanently provide additional, affordable repayment and loan modification options for private student loan borrowers, including options for borrowers who see long-term changes in their income.”
Borrowers still being sued
Consumer advocates have been, over the last few weeks, calling out cases where debtors are still getting sued — at a time when many are out of work or struggling to keep one.
For example, in one case shared with Yahoo Finance, as the number of coronavirus cases started to increase in New York, “SLM Private Education Loan Trust 2012-C,” took legal action against a borrower who owed nearly $60,000 in Far Rockaway, Queens, New York on March 9.
That trust is owned or managed by Navient, as per Navient’s records. It’s essentially an asset-backed security (ABS) that’s backed by a pool of private student loans. The trust makes money from collecting on those loans, as per an SEC filing from 2012.
According to the suit, the borrower was in default and was summoned to answer the complaint in the action “within 20 days.” If the borrower failed to answer, it would have resulted in default judgement, which could then lead to situations like wage garnishment. And since the borrower received the papers, the number of cases of people with the coronavirus infection in New York has exploded.
Navient spokesperson Paul Hartwick stressed to Yahoo Finance that the company had stopped filing new cases in mid-March.
Private loan borrowers ‘cut out of the stimulus bill’
Former Consumer Financial Protection Bureau Student Loan Ombudsman Seth Frotman, who with the help of his team had been highlighting lawsuits that had popped up against debtors, applauded the move.
“It is absolutely critical the private student loan borrowers do not bear the brunt of economic disruption caused by the pandemic,” he stated. “These senators are fighting on behalf of the private student loan borrowers who were cut out of the stimulus deal.”
Others called out the government’s relationship with private lenders.
“I have never understood why the government allows the servicers to collect federal student loans with their right hand, and collect private student loans with their left hand,” Austin Smith, an attorney specializing in student debt and bankruptcy at Smith Law Group, told Yahoo Finance. “It’s clearly a conflict of interest.”
Smith continued: “When asked if the servicers would honor the spirit of the President’s order and stop collecting on private loans, the head of the loan servicer’s lobby said the servicers had contractual obligations to the commercial banks who owned the private loans which had to be honored first. That’s actually not true given their fiduciary duties to the government. And anybody who watched The Apprentice knows you don’t play fast and loose with fiduciary duties to Trump.”
Aarthi is a writer for Yahoo Finance. She can be reached at firstname.lastname@example.org. Follow her on Twitter @aarthiswami.