Amid the Coronavirus, Struggling Private Student Loan Borrowers Pause Payments without a Path to Get on Track
By Ben Kaufman | June 8, 2020
With tens of millions of Americans out of work and the effects of pandemic relief programs beginning to wane, June 1st marked yet another “first of the month” when many were simply not able to pay their bills. While we have seen the impact of mass missed payments on the credit card, mortgage, and auto loan markets, early signs indicate the private student loan market is experiencing similar shocks.
With private student loan borrowers overlooked by the protections included in the CARES Act, companies have recently touted payment relief through forbearance—a temporary option in which borrowers can pause payments while their loans still accrue interest. However, available data indicate that private student loan borrowers are still struggling, and that short-term, opt-in solutions like forbearance simply will not meet the needs of the borrowers hit hardest by this crisis.
The private student loan market is extremely opaque and lacks many of the key reporting requirements present in other areas of consumer finance—in fact, some participants share critical information on borrower outcomes with only their most elite clients. However, indirect sources such as the disclosures from Student Loan Asset Backed Securities (“SLABS;” investment vehicles backed by student loans) point to a massive spike in borrowers recently becoming unable to make their payments.
We examined publicly available reports outlining the performance of the private student loans that underlie various SLABS from Sallie Mae and Navient, two of the most prominent student loan companies. The SLABS portfolios surveyed included more than three million private student loans cumulatively worth more than $32 billion. Over the period from January 2020 to April 2020, within these portfolios:
- The dollar value of private student loans in forbearance exploded, increasing as much as 1360 percent.
- The number of accounts in forbearance similarly surged, increasing as much as 1190 percent.
- Compared to the period prior to the pandemic, the overall number of loans whose borrowers are not making any progress toward repayment increased more than 36 percent.
Note: Analysis excludes Navient Student Loan Trust 2017-5, which had not published a distribution report for April 2020 at the time of our analysis.
These trends show that private student loan borrowers nationwide are struggling, with an untold number of people either falling behind or relying on meager protections to stay temporarily afloat. These data could also be only the tip of the iceberg, with many private student loan borrowers likely having missed out on available relief due to poor loan servicing, poor customer service, or poor outreach from industry regarding the existence of pandemic response programs.
Worse, many forbearance programs are likely to end soon, leaving borrowers on their own while millions of Americans remain suddenly unemployed, underemployed, or mired in unexpected expenses stemming from the fallout of the coronavirus pandemic. Plus, many borrowers will exit forbearance to find not just that their financial circumstances haven’t improved, but also that their student loans have gotten more expensive due to the balance of unpaid interest that accrued while their payments were paused.
These borrowers will need long-term help from their private student loan company as they try to stay on track. However, these companies have an unfortunate history of refusing to work with borrowers toward a solution during times of financial strain. And if borrowers struggle as a result of lenders refusing to come to the table, there will be little way for researchers and advocates to know. As described above, the private student loan market lacks key transparency measures, making it difficult to discern how and where borrower harm might be happening during the pandemic.
To remedy this lack of insight and the consumer risks it presents, we recently called for the Consumer Financial Protection Bureau to use tools already granted to it by Congress to fill critical gaps in our knowledge with a landmark data collection effort spanning the private student loan market. As we described it at the time of our writing, “[t]his data will finally allow policymakers, law enforcement, and regulators to have the tools they need to protect borrowers—ensuring recent promises of relief are implemented in a manner consistent with federal consumer financial law and not simply a PR stunt.”
Until then, our only window into the private student loan market will continue to be indirect, consisting largely of data gleaned from SLABS disclosures, industry publications, and the thousands of complaints that student loan borrowers have submitted to the CFPB since the outbreak of COVID-19. But while policymakers, regulators, and researchers guess at the reality on the ground, borrowers will continue to be left struggling under the weight of missed payments, shattered finances, and, if the little information we do have available is any indication, an increasingly insurmountable debt burden.
Ben Kaufman is a Policy and Research Analyst at the Student Borrower Protection Center.