Could there be a break for people struggling to pay back student loan debt? Sounds like there could be. It looks like Wells Fargo and Discover Financial Services are rolling out modification programs to help relax the repayment terms on private student loan debt.
Wells Fargo and Discover Financial Services
Recently Wells Fargo, which holds $11.9 billion worth of private student loans, announced it would lower interest rates for eligible borrowers as well as start to extend repayment periods come February. The bank anticipates this will help save their borrowers thousands of dollars in interest over the course of the loan repayment.
Discover Financial Services also has plans to launch a loan modification program early 2015 – through lowering interest rates while also forgiving some debt. The company holds $8.3 billion in private student loans.
Privately Held Student Loans
Private lenders — banks, credit unions, and other financial firms that provide student education loans — often take a lot of flack for being unwilling to negotiate with borrowers struggling with repayment. Borrowers are often at the mercy of these private lenders who hold 8 percent of the $1.18 trillion student loan market due to the fact that, according to lenders, student loans are packaged into securities and then sold to investors, thus creating restrictions on the contracts. These restrictions make it hard for lenders to adjust the terms of the repayment for borrowers.
Yet, Well’s Fargo has been working to ease this. John Rasmussen, head of Wells Fargo’s education financial services, said the bank has been working for the last 18 months alongside regulators to create its program. “We’ve been hearing over the years that our students needed and wanted more options in those situations when they were having financial hardship,” Rasmussen said. The bank will consider lowering interest rates for borrowers who are able to demonstrate hardship, such as an upcoming rough patch as the result of a job loss. Additionally, a lender need not be delinquent on their loans to qualify. A test program launched in May will a few dozen borrowers saw monthly payments lowered by as much as 31 percent.
High Interest Rates
According to the Department of Education, student loan interest rates can be as high as 18 percent. Private loans also often have variable rates. The good news is that private loans delinquencies look to be at their lowest levels since the economic crisis took form, hovering at just below 3 percent.