Many students accept private student loans when federal loans will not
cover the complete cost of attending college or grad school. However,
private loans can cost significantly more than federal loans and do not
offer the same relief options as federal loans. Additionally, private
loans can put the student and their co-signers at risk should the student
not be able to make payments following graduation. Approximately 90 percent
of students with private loans have co-signers and these co-signers are
completely liable should the student default on his private loan. Some
banks advertise that co-signers can be released after the borrower makes
a certain number of payments but about 90 percent of borrowers who make
this request are rejected.
During the 2014-2015 academic year, lenders made $6.7 billion in new private
loans. This amount is up about 14 percent from $5.87 billion in 2009-2010.
According to Natalia Abrams, executive director at Student Debt Crisis,
“The cost of college has gotten so outrageous that people are relying
on these loans more, sometimes just to afford a state college.”
Upon graduation, many students cannot find employment and face an outlandish
amount of debt that they are unable to pay. Private loans lack the relief
programs available when borrowers cannot make scheduled payments. Many
borrowers find that private lenders are extremely reluctant to defer or
accept anything less than full payment once the loans become due. Borrowers
who do not pay sometimes face multiple phone calls a day and potential
law suits if they are unable to make payments. Other borrowers have become
trapped by fine print provisions that allow the lender to put their loans
in default if they were late on an unrelated bill held by the same company.
Fortunately, there are signs of improvement. Several major banks plan to
start loan modification programs including Citizens Bank. Wells Fargo
began modifying loans at the end of last year and of the 194 loans it
modified, it reduced payment on average by 30 percent. Additionally, it
reduced interest rates by about six percentage points. Sallie Mae also
began modifying loans and now offers a graduated repayment program for
graduate with loans made after July 1, 2013.
According to the published of Edvisors.com, Mark Kantrowitz, when working
with private lenders, it is important to make sure that borrowers explain
their situation without asking for specific forms of relief. A borrower
should discuss all available options for relief and figure out what form
of relief best matches the borrower’s financial situation. Additionally,
a borrower should be prepared to provide the lender with copies of documentation
of his circumstances and detailed financial statements.