Borrowing

Here's how to find out if you're eligible for relief on your private student loans

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Half of Americans say that they or someone in their household has lost their job or otherwise lost income due to the pandemic, according to a recent NPR/PBS NewsHour/Marist poll. If you're among them and you're also paying off student loan debt, keeping up with those payments may feel like even more of a struggle.

Borrowers with federal student loans already received some relief thanks to the CARES Act, which deferred federal student loan payments and interest for six months through September 30, without penalty for borrowers who defaulted on their loans.

Now there's more good news for borrowers with private student loans: Some lenders have agreed to provide relief for certain borrowers with private or commercially held loans under a multistate agreement.

Private student loans make up 7.76% of the total outstanding U.S. student loans, according to MeasureOne, which provides academic data and analytics. 

If you have private student loans, here's how to find out if you're eligible for relief, as well as some guidelines for deciding whether or not to keep paying your loans.

Are you eligible for private loan relief?

At least 14 state and private lenders have agreed to offer relief to student loan borrowers as part of an agreement with nine states: California, Colorado, Connecticut, Illinois, Massachusetts, New Jersey, New York, Vermont, Virginia, and Washington. New York separately reached an agreement with some private student lenders in early April. 

Policies vary from lender to lender, so check a list of participating lenders to see what yours offers. Some lenders will provide at least 90 days of forbearance, meaning repayment obligations are suspended for that period of time. 

"A forbearance is a payment pause, meaning the borrower's obligation to make payments is suspended," says Mark Kantrowitz, publisher and vice president of research at SavingForCollege.com. "Unlike the federal payment pause, interest will continue to accrue during the payment pause provided by the two dozen or so lenders. The interest will be added to the loan balance at the end of the payment pause."

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In addition to forebearance, "some private lenders are offering their own reduced payment options in addition to waiving late fees," says Mike Ramirez, a certified financial planner at EP Wealth Advisors in Torrance, California. You may also be able to get late fees refunded. 

Keep in mind that the relief is not automatic, says Kantrowitz. "Borrowers have to ask their lender or loan servicer for it."

Should you take the forbearance?

"[Forbearance] is certainly better than becoming delinquent and negatively affecting your credit," says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors. "But it's not an ideal solution if you can afford to make payments."

Since interest will continue to accrue on your private loans during forbearance, you'll need to carefully weigh the pros and cons of taking a short-term pause or continuing to pay each month. Your decision will depend on a number of factors, including how much you owe, the amount you pay each month, and if you need the money you typically put toward your loans to cover basic living expenses.

"The interest still accrues on the loan during this period, and often is added to the principal balance at the end, giving you a higher balance than when you started," says Mayotte.

That's partly why Mayotte recommends you continue making payments if you can swing it. "If you can't afford the full payment, I would call and request the relief, but pay what you can during the period to reduce capitalized interest."

Will private student loans affect my credit score?

"[Taking forbearance] should not negatively impact a borrowers credit score," says Mayotte. "If a borrower was delinquent prior to the forbearance being applied, the credit report will still show that."

However, "private student loans can affect your credit scores the same way most other consumers debts do," says Mayotte. "If you become past due on a private loan, it can negatively affect your credit score."

Students loans are considered installment debt, meaning they're borrowed as a lump sum and paid off in regular installments, without the option to add to your balance. Paying back installment debt on time each month can improve your score.

"A late payment could hurt your credit score, typically reducing the credit score by about 50 points, sometimes more," says Kantrowitz. "Lenders have agreed to report borrowers as though they are still current on their private student loans."

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