In April, we released a report about the lack of options for private student loan borrowers. Unfortunately, our clients and other borrowers who have contacted us tell us that not much has changed since April.
We are hopeful that there will be a brighter future going forward, perhaps with a new consumer financial protection agency. Even if this much-needed re-regulation occurs, there are countless borrowers stuck with loans that they have no hope of repaying. Lenders and the government have decided that, unlike the lenders that made these loans, these borrowers are “too small” to help. In reality, their numbers are large, but their political power is not.
Is there political will to do something about this and if so, what can be done? We listed a number of possible solutions in our report, including:
1. Mandating Loss Mitigation Relief
2. Restoring Bankruptcy Rights for Private Loan Borrowers, and
3. Creating Loan Cancellations for Fraud Victims
Senator Sherrod Brown of Ohio recently added another proposal to this list. The basic concept is to allow some borrowers to swap private student loan debt for federal student loan debt. These borrowers would then be eligible for the range of federal flexible repayment and other options. Borrowers would choose whether they want to participate and at least in the current proposal, would be able to swap only up to what they could have borrowed (but didn’t) under the federal loan limits.
We have concerns about this proposal. Among other issues, it does not go far enough to help the neediest borrowers, mainly those who are delinquent or in default. Also, many borrowers will be left with balances on their private loans even after the swap.
Despite these concerns, we commend Senator Brown for focusing on these financially distressed borrowers and for recognizing the need to talk about possible solutions. We hope this discussion will occur in Congress, in the Administration and across the country because the borrowers we wrote about in April are still stuck with high cost loans, economic conditions and unemployment rates are still dismal and the lenders who created this mess are not voluntarily providing relief.
