Nine states and the District of Columbia have reached agreements with student loan companies to provide residents relief during the health crisis, offering a lifeline to millions of people with debt held by private outfits.
A dozen loan servicing companies, including Navient, Nelnet and Aspire, will let borrowers postpone their payments for three months without the threat of late fees or negative impacts on their credit ratings. The companies also will hold off on filing debt collection lawsuits during that time and help eligible borrowers enroll in payment plans tied to their income.
The agreement comes on the heels of a federal $2 trillion stimulus package, known as the Cares Act. While the law automatically suspends interest, payments and involuntary collection for most people with federal student loans until Sept. 30, it did not include millions of borrowers.
About 7.2 million people are ineligible for the congressionally mandated reprieve because their federal loans, originated through the defunct Federal Family Education Loan (FFEL) program, are held by private companies. People with education loans from banks or other financial firms also are excluded.
Illinois Gov. J.B. Pritzker, a Democrat coordinated the multistate agreement last month, involving California, Colorado, Connecticut, Illinois, Massachusetts, New Jersey, Vermont, Virginia and Washington. D.C. joined last week.
The deal largely mirrors an agreement New York struck with student loan companies in April to help residents whose debt was excluded by the federal law. New York and the other states used their regulatory authority over student loan companies operating within their borders to bring servicers to the table, though the agreement is voluntary.
Consumer groups have questioned why some of the biggest names in the $130 billion private student loan market are absent from the multistate agreement.
“We urge all private student loan companies to provide relief and are disappointed that some of the biggest players – Wells Fargo, Discover, and [Pennsylvania Higher Education Assistance Agency]/FedLoan Servicing – declined to make this commitment,” said Suzanne Martindale, senior policy counsel at Consumer Reports.
Discover Financial spokesman Robert Weiss said the company already offers student loan borrowers a wealth of temporary relief, including the option to pause payments for two months.
“We choose not to be included . . . to retain flexibility to pivot and serve our customers’ unique needs as required,” Weiss said in an email. “We’re concerned that changing what we do to support our customers in order to align to the [agreement], limits our flexibility to best serve our customers.”
Wells Fargo spokesman Manuel Venegas said the participants in the agreement are companies required to hold a state license to service student loans, a stipulation that banks are exempt from. All the same, he said, Wells Fargo has implemented the relief at the heart of the agreement.
FedLoan and Sallie Mae said they were never invited to participate in the multistate agreement, but both are party to New York’s deal and have their own policies to help struggling borrowers during the health emergency.
“Our assistance has been in place and communicated since early March,” said Rick Castellano, a spokesman for Sallie Mae, which is offering a three-month suspension of payments. “We will continue to . . . monitor our customers’ needs and the overall environment to determine whether additional relief is necessary.”
(c) 2020, The Washington Post · Danielle Douglas-Gabriel
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