Private student loan borrowers who are struggling to repay their loans may soon get some relief thanks to new programs being rolled out by two of the largest private lenders in the country. Wells Fargo and Discover Financial Services both have announced plans to offer private student loan modification programs to their existing clients. This is definitely a shift since private student loan providers typically do not offer many options for those having difficulty paying back their debt. In fact, the Consumer Financial Protection Bureau (CFPB) saw a 38 percent increase in complaints regarding private student loans this past year. The majority of the complaints dealt with repayment options and lack of flexibility in restructuring loans, according to the CFPB annual report released in October. Although private student loan lenders receive quite a bit of harsh treatment in the press, it’s interesting to note that private student loans only account for eight percent of the total $1.15 trillion in student loan debt. Lenders, however, are listening to both the CFPB and consumers, and are taking steps to help those facing financial hardships. Could you be eligible for one of the new private student loan modification programs? If you have a current loan with either Wells Fargo or Discover, here’s what you need to know.
In May, Wells Fargo began a pilot phase of their student loan modification program. Many borrowers had their payments reduced by 31 percent. This month, the program was opened to all existing borrowers who are 120 to 130 days late on their payments, or are current and at risk for falling behind due to a financial hardship or medical issue. To qualify, all borrowers on the loan (including parental cosigners) must show a documented hardship. In addition, Wells Fargo will determine eligibility for the program based upon current income, credit score, and overall debt. If you meet the requirements for modification, you may have your interest rate lowered to as little as one percent. The modification will last for a minimum of 12 months, but may be extended for as long as the life of the loan. Unfortunately, borrowers who are more than 130 days late, or in default, are not eligible for the program.
Discover Financial Services
Earlier this year, Discover did extend interest-only payments ($50 minimum) to some of its borrowers. Very few details, however, have been released about the student loan modification program that is set to begin in early 2015. We do know that they will be offering both an interest-rate reduction and a partial loan-forgiveness option. Unlike Wells Fargo, Discover will not require documentation from borrowers to prove they have a legitimate financial hardship.
Borrowers who have their student loans through a lender other than those listed may still have options, as well. PNC Financial Group began lowering some borrower’s rates earlier this year, and private student loan giant, Sallie Mae, has offered modifications since 2009. If you are having difficulty paying your student loans, reach out to your servicer for help. You can also contact the CFPB, if you are having trouble working out a plan with your current private student loan servicer.