Lenders Showing Some Flexibility on Private Student Loans

Michael Lux Blog, Lower Payments, News, Student Loans 1 Comment

In a surprising move, Wells Fargo recently announced a program to assist private loan borrowers who have fallen behind on their student loan payments.  According to Wells Fargo, borrowers may be able to get lower interest rates while they get their finances in order.  For some borrowers, they may be able to get interest rates as low as 1% for the life of the loan.  Wells Fargo’s head of education financial services, John Rasmussen said that, “We’ve been hearing over the years that our students needed and wanted more options in those situations when they were having financial hardship.”

Along with Wells Fargo, Discover has expressed in interest in providing such a modification program.  They both would join Sallie Mae, who has offered an interest rate reduction program since 2009.  Based upon what we know about Sallie Mae’s rate reduction program, borrowers who are in a financial hardship stand to benefit from the rate reduction.

The Good News

The obvious good news for many borrowers is that they will get the opportunity to reduce their interest rate and make a dent in the principal on their student loan balance.  With many borrowers getting fed up with large payments going almost entirely towards interest, this shift is definitely a positive change.  This also presents an opportunity for many borrowers to get their credit repaired.

In addition to the individual borrower benefits, this shift in lending policy demonstrates that lenders may finally be realizing that many borrowers have been put in nearly impossible positions.  The realization that more reasonable interest rates may be in the interest of all parties involved is a huge step forward.

The Bad News

These programs will likely only benefit borrowers who have been hit really hard by their student loans.  People who have scratched and clawed and found a way to make all of their payments may have a more difficult time getting their rates lowered.

This program also represents nothing more than a band-aid on the student loan crisis.  If it helps some people, great, but college costs continue to skyrocket and students continue to borrow money that they cannot pay back.  If anything, these programs may just eliminate the most extreme examples of the student loan crisis and keep the public in the dark about the severity of the problem.

Why would Wells Fargo and Discover do this?

Lenders who have been holding out for every penny of interest and each dollar in late fees may finally be realizing that many people cannot afford their debt.  They may have also realized that there are many people who will pay their debt provided their lenders charge more reasonable interest rates.  In short, Wells Fargo seems to think that some money is better than none.

It may not fix the student loan crisis, but for many, it could be the start of a healthier financial future.

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There must be more at stake for Wells to get into this! Greater losses than benefits to consumers?