Survey: 70% of Private Student Loan Borrowers Successful in Asking for Lender Relief

June 17, 2020 Loans & Finance

More than half of all private student loan borrowers in the U.S. have lost income since the coronavirus pandemic struck. To make matters worse, their private loans are ineligible for the government’s penalty-free repayment pause granted on most federal loans.

Fortunately, however, about 70% of private loan-holders who have requested relief directly from their lenders have received it, according to our new survey of 1,000-plus borrowers.

And yet, it’s not always enough — 30% of respondents reported strongly considering bankruptcy since the beginning of March.

Key findings:

Approximately 54% of private loan borrowers requested a reprieve from their lender due to COVID-19. Male borrowers (65%) were significantly more likely to seek help than female borrowers (42%). (Read more)
Almost 70% of borrowers were successful when asking private lenders for a break on their monthly payments. Unfortunately, many borrowers who didn’t call for assistance either didn’t know that was an option or believed their lending institution wouldn’t be helpful. (Read more)
Nearly 3 of every 10 respondents with private education debt have “strongly considered” filing for bankruptcy over the last three months as a means to loan discharge. Another 24% considered a bankruptcy proceeding, but only as a fleeting thought. (Read more)
About 51% of private student loan borrowers have seen their wages or hours cut, or they were laid off or furloughed due to the coronavirus’s effect on the economy. (Read more)
About 8 in 10 of these private loan borrowers believe it’s unfair that their debt was excluded from federal government-granted relief. (Read more)

Struggling private loan borrowers frustrated by lack of federal relief

With the coronavirus relief act passed by Congress at the end of March, millions of federal student loan borrowers were given a 0% interest, six-month vacation from repayment. Unfortunately, the law left millions of borrowers uncovered.

In fact 8 in 10 private loan borrowers responding to our survey said they felt like they’ve been left out to dry by the federal pandemic-relief packages so far. Exacerbating their plight: Many borrowers due to receive relief checks could lose the funds to creditors just as it hits their bank accounts if they have delinquent loans.

Making matters worse, a narrow majority (51%) of private loan borrowers said their earnings have taken a hit from the coronavirus outbreak.

Democrats in Congress have since called to expand benefits to some currently ineligible borrowers. The Democratic-controlled House of Representatives passed a bill in mid-May to extend the repayment suspension and deliver $10,000 worth of forgiveness to borrowers with ineligible loans. These include privately-held Federal Family Education Loans, school-sourced Perkins loans and loans from state governments, banks, credit unions and online companies.

The Republican-controlled Senate has yet to take up the proposal. But fortunately, some borrowers are finding assistance elsewhere.

Private loan borrowers seek help from lenders

For some with private loans, help has arrived from a seemingly unlikely source: private lenders and refinancing companies.

A large segment of lenders is advertising a range of relief options for their customers, including forbearance periods. These are repayment pauses that typically still allow interest to accrue but won’t damage the borrower’s credit — although some have reported unfairly dinged credit scores anyway.

Lenders have been very responsive overall: Just about 10% of borrowers who contacted their lender seeking relief were turned down completely. And while roughly 20% didn’t receive monthslong payment suspensions, they did obtain some other form of support.

Overall, respondents said, they were offered the following types of aid:

Payment deadline extensions (66%)
Waived late fees (48%)
Reduced minimum payments (36%)

Men appeared more likely than women — 65% versus 42% — to ask their private lender for a break. (Note that a previous Student Loan Hero survey showed male employees also more likely to ask for a raise at work).

There was a clear generational trend, too: Millennials were more prone to seek assistance (58% of them did), as compared with:

Gen X (55%)
Gen Z (51%)
Baby boomers (35%)

Seeking help wasn’t limited to those in the most dire straits. Almost 45% of borrowers whose income hadn’t been harmed by the pandemic-paused economy still pursued private loan repayment relief. Such proactive moves can help give borrowers space to build up their emergency fund in case of a job layoff or other financial stress from the economic recession.

On the other hand, not asking for help (even when it’s available) continues to be a problem for student loan borrowers of all stripes. The primary reason — cited by 38% — was simply not knowing it’s an option, while another 8% of respondents said they didn’t believe such a request would be successful.

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Private loan relief or not, some borrowers consider bankruptcy

Historically, discharging student debt via bankruptcy has been extremely difficult, but perception is partly responsible for reality. Bankruptcy attorneys might leave student debt off of filing due to the fact that they’re rarely discharged in court. In fact, only about 400 of the 250,000 student loan borrowers who go bankrupt each year seek a student loan discharge, according to academic research cited by the Wall Street Journal in January 2020.

However, headlines showing student debt being forgiven by bankruptcy could be shifting attitudes. And this, in turn, could help to explain why close to 34% of private loan borrowers whose income was impacted by the ongoing recession said they had strongly considered bankruptcy over the last three months.

In fact, a stunning 40% of Gen X borrowers with private education debt reported “strongly” mulling such a move, compared with …

27% of millennials
19% of Gen Zers
11% of baby boomers

Gen X, it should be noted, carries higher average balances than peers of other generations, according to our student loan coronavirus data snapshot.

Bankruptcy is an extreme strategy that should only be considered a last resort for student loan borrowers (and consumers, in general). Student Loan Hero recommends that borrowers first try righting their student loan repayment or pursuing loan forgiveness opportunities and loan repayment assistance programs before subjecting their finances to a judge.

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Where private loan borrowers can seek help with student debt

Borrowers welcome relief from the federal government and their private lenders. With or without their support, however, many borrowers are left wanting or needing more.

Fortunately, some state governments are offering student debt help, with various governors reaching agreements with lenders in their states to give borrowers a reprieve that won’t damage their credit reports. Try contacting your state’s higher education authority (via the Department of Education’s contact map) for information about support programs.

Private loan borrowers with good credit (or a creditworthy cosigner) can also consider student loan refinancing. This groups a borrower’s private loans with a single new lender that could potentially carry a lower overall interest rate or reduced monthly payment.

Be careful about refinancing federal loans, however, because repayment on those is currently suspended, and even when it resumes, you would lose access to government-exclusive protections like income-driven repayment.

Meanwhile, borrowers who have considered taking the drastic step of going to court should weigh debt consolidation versus bankruptcy. Having all information handy before choosing a loan repayment strategy is imperative if borrowers are to make the best of a bad situation.

Methodology:

Student Loan Hero commissioned Qualtrics to conduct an online survey of 1,042 student loan borrowers, including 526 borrowers who have private student loans. The survey was fielded from May 26-29, 2020.

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