[Editor's note: At a time when loan industry advocates and the news media are raising alarms about private student loan providers tightening their lending standards, we at Higher Ed Watch believe it's important to remind readers about the dangers these high interest loans pose for financially-needy students. In this post, consumer advocate Deanne Loonin warns that these loans are particularly damaging because of the way they have been financed. In the weeks ahead, we will take a closer look at the tactics that some loan companies have used to erode key consumer protections for private loan borrowers.]
By Deanne Loonin
In my experience representing borrowers through the Student Loan Borrower Assistance Project, I have found that a great many borrowers who are in financial distress could get back into repayment if only lenders would work with them to modify loan terms or offer flexible repayment options. At the same time, I have also found private student loan providers to be universally inflexible in granting long-term repayment relief for borrowers. Even in the most severe cases, the creditors I have contacted have offered no more than short-term interest-only repayment plans or forbearances, during which interest on the loans continues to accrue. This experience holds true for both for-profit and non-profit lenders.
Lenders who refuse to offer help often say that they are acting in the best interests of borrowers, who will be harmed, they claim, if they make payments so low that they do not reduce principal. This is a good principle in theory, but not particularly practical for borrowers in severe financial distress, especially those facing long-term problems such as disabilities. Unfortunately, these borrowers have reached a point where they will not be able to repay their loan balances without substantial help and flexibility from their lenders.
Isn't it in the loan providers' interest to provide a helping hand? Don't they benefit if they can ease borrowers, who otherwise will default on their loans, back into repayment?