While the Coronavirus Aid, Relief and Economic Security Act helps many federal student loan borrowers, it leaves out millions with privately held student loans. Now, several states are taking action to help people with this type of debt.
Ten states and the District of Columbia have negotiated with private loan servicers on behalf of borrowers. Opting in to a new set of protections can help you keep your account in good standing. Meanwhile, several more states have temporarily suspended debt collection and wage garnishment for certain types of consumer debt, which may provide relief for student loan borrowers already in default.
State Relief for Private Student Loan Borrowers
In April and May, several state attorneys general established an agreement with private loan companies to offer private student loan relief amid the coronavirus crisis.
While limited in scope, “any protections that can help guarantee help for private student loan borrowers – especially now, when so many people are in financial crisis – is a positive step,” says Antoinette Flores, director of postsecondary education at the Center for American Progress, a left-leaning policy institute.
To qualify for the relief programs:
- You must have a private student loan or a commercially held loan from the Federal Family Education Loan Program.
- You must live in the District of Columbia or one of the participating states: California, Colorado, Connecticut, Illinois, Massachusetts, New Jersey, New York, Vermont, Virginia or Washington.
- Your loan servicer must be participating in the agreement.
You’ll have to call your loan servicer and request the following protections:
A minimum 90-day forbearance. If you need to give your budget a little breathing room in the coming months, you can ask your loan servicer to suspend payments for up to 90 days. When you call the loan servicer to request forbearance, ask whether interest will accrue during this time. If interest is “capitalized,” or added to the principal balance, your balance and monthly payments typically increase after forbearance.
“The 90-day relief is a really strong start,” says Michele Streeter, external affairs and policy analyst at The Institute for College Access & Success. “But on top of that, it will likely need to be extended. We’d like to see states continuing to work with lenders to secure additional benefits to borrowers.”
Waived late-payment fees. While your loan is in forbearance, you won’t have to worry about paying late fees on missed payments. Lenders will likely resume fees if you miss payments post-forbearance, so check your loan agreement to find out when late fees apply.
Suspended debt collection lawsuits for 90 days. Under the multistate agreement, loan servicers will hold off on filing debt collection lawsuits while your loan is in forbearance. But litigation already in the works might continue, depending on your state government or local court system‘s rules.
Accounts reported correctly to the credit bureaus. While in forbearance, the loan servicer must report your account in good standing to the credit bureaus. The Consumer Data Industry Association has issued guidance on reporting accounts during disasters like the pandemic. Regularly check your credit reports to verify the lender is reporting your account correctly. The three major bureaus – Equifax, Experian and TransUnion – are offering free weekly online credit reports through April 2021. If you catch an error, ask your servicer to fix it or submit a dispute to the credit bureaus.
Help with enrolling in other assistance programs. Loan servicers will help eligible borrowers enroll in special hardship plans, such as income-based repayment.
Check your state’s guidance to confirm which loan servicers are participating. These servicers have joined the agreement across many states:
- Aspire Resources
- College Ave Student Loan Servicing
- Earnest Operations
- Edfinancial Services
- Kentucky Higher Education Student Loan
- LendKey Technologies
- Higher Education Loan Authority of the State of Missouri
- SoFi Lending
- Tuition Options
- United Guaranty, now Arch MI
- Upstart Network
- Utah Higher Education Assistance Authority
- Vermont Student Assistance
Temporary Debt Collection Relief
Not every state is part of the multistate agreement with loan servicers, but some are suspending debt collections or wage garnishments for certain types of consumer debt. This may help if you have private student loan debt that’s already in default.
Private student loans may be considered delinquent after just one missed payment. The next step is default, as defined by the loan contract, says Massachusetts-based student loan attorney Adam S. Minsky. “Once in default, the loan could be sent to collections,” he says. Private lenders can pursue borrowers through the state court system to get a judgment, which can result in the seizure of income, assets, or property, depending on state law.
If you live in a state that has suspended debt collections, the creditor should pause all collection actions, including phone calls and letters. In most cases, your income is protected from creditors if your state has paused wage garnishment orders.
This “means borrowers have more money in their pocket to spend on immediate needs,” Flores says. “Especially since borrowers in default or those with a loan in debt collections are already likely in a shaky financial position.”
But remember, it won’t stop legal action in the long run. “As soon as this order is lifted, there’s going to be a rush on filing,” says Stanley Tate, a Missouri-based student loan attorney. “This is giving people a moment to breathe.”
What to Do if You Can’t Get Relief
If you don’t live in a state offering assistance, you may have other relief options for your private student loan. “You can always ask for a modification on that loan,” Tate says. “Tell your loan servicer, ‘Here’s my financial situation. I can’t afford more than XYZ.’ You may find a kind ear there.” But ultimately, loan modification is at the loan servicer’s discretion.
If you do live in a state with relief options, “give it a couple of weeks’ time to let things process,” Tate says. “Things are happening on the fly.”
If your loan servicer still isn’t responding to help requests after a week or two or your creditor isn’t following new state laws, reach out to one the following consumer advocates:
Your state attorney general’s office. Your state attorney general is the chief legal representative in your state and enforces consumer protections. You can typically call, email or file a complaint online. Head to your state attorney general’s website and look for a student loan complaint form.
The Consumer Financial Protection Bureau. You can use the CFPB’s online form to report your loan servicer and get help resolving your issue.
Your state’s student loan ombudsman. A student loan ombudsman is an impartial person who can facilitate a solution between you and the student loan servicer. You should contact the ombudsman after exhausting your other options. Head to your state ombudsman’s website for contact information.
State-by-State Relief Programs
The following places are either offering protections under the new multistate agreement with loan servicers or another type of relief. Check each area’s page for more information and to learn how to get help.
California: Entered multistate agreement with private student loan servicers. Lenders also can’t garnish debt related to COVID-19 difficulties.
Colorado: Entered multistate agreement with private student loan servicers.
Connecticut: Entered multistate agreement with private student loan servicers.
District of Columbia: Entered multistate agreement with private student loan servicers. The District also suspended all debt collection activity, including student loans, during the emergency and for 60 days thereafter.
Illinois: Entered multistate agreement with private student loan servicers. Debt collectors also can’t garnish wages for private debts.
Iowa: Suspended all wage garnishment actions.
Kentucky: Suspended all enforced collection actions on debt.
Massachusetts: Entered multistate agreement with private student loan servicers.
Michigan: Suspended collection of student loan debt serviced by the Michigan Guaranty Agency until Sept. 30. The MGA will also suspend current and new administrative wage garnishments.
Minnesota: Suspended garnishments for consumer debt.
Nevada: Suspended court-ordered wage garnishments and judgments against bank accounts.
New Jersey: Entered multistate agreement with private student loan servicers.
New York: Initiated its own agreement with private student loan servicers. Also suspended debt collection actions on student debt owed to New York state.
North Carolina: Suspended collection of state-owned debts, including student loans.
Puerto Rico: Requires forbearance on consumer loans if the consumer requests it.
Rhode Island: Suspended collection of student loan debt serviced by the Rhode Island Student Loan Authority for up to three months.
Vermont: Entered multistate agreement with private student loan servicers.
Virginia: Entered multistate agreement with private student loan servicers.
Washington: Entered multistate agreement with private student loan servicers.