The many pitfalls of private student loans

Then there are the borrowers who have become trapped by traps buried in the fine print. Some loans include provisions that allow them to put the loan in default if the borrower is late on an unrelated bill held by the same lender, among others. In other contracts, even if borrowers are up to date with their payments, their loans can default (and become immediately due in full) if a co-signer files for bankruptcy or dies, according to the consumer office.

Several of the largest private lenders say they do not engage in these practices, but regulators argue the problem still arises for loans that have been packaged and sold to investors. “No matter what some lenders say, the companies that handle the loans after they are sold can claim that they will be liable to the bondholders if they do not live up to the terms of those contracts,” said Seth Frotman, mediator at interim student loans at the Consumer Financial Protection Bureau.

There are signs of improvement. Citizens Bank said it plans to start loan modifications soon, and Wells Fargo began modifying loans late last year. Of the 194 loans it amended, it cut payments by 30 percent, on average, largely by cutting interest rates by about 6 percentage points. The lender, with $ 12 billion in private loans outstanding, can reduce the rate temporarily or permanently.

Navient, which has been managing student loans and has been proposing changes since 2009, said about $ 2 billion in private loans were part of an interest rate cut plan, or about 7% of its $ 28 billion portfolio. dollars.

Sallie Mae, who is already modifying loans, has also started offering a degree repayment plan for graduates whose loans were made after July 1, 2013. After the six-month grace period, borrowers can make 12 interest payments just to reduce their monthly bill.

Kristin Riopelle left the University of New Hampshire in 2012 with a bachelor’s degree in theater, a minor in business, and $ 95,000 in private loans. But she was able to take advantage of these types of programs even though it was difficult to work with some lenders. She made interest payments only for two years on one loan and on another she was able to make payments that gradually increased.

But her salary as an administrative assistant still doesn’t cover all of her monthly payments, so her father pays around $ 200 on a loan, which he co-signed. She recently consolidated most of her private loans to Citizens Bank, which she said would keep payments stable over 20 years.