Private student loan lenders already give borrowers options that fall in line with what the Consumer Financial Protection Bureau is considering to make private student loan repayments more affordable, according to the Education Finance Council.
These programs include economic deferment and forbearance, which were established long before the financial crisis and great recession; and income based or sensitive repayment programs, which were established in the last few years.
The EFC said in a press release yesterday that its members have developed and implemented targeted private student loan repayment options to address more affordability. Lenders for example, offer six-month grace periods along with forbearances and deferments ranging from three months to eight years for half-time or greater enrollment in college; internship or residency programs; VISTA, Peace Corps, or AmeriCorps participation; hardship; unemployment; maternity; military duty; and medical issues.
These lenders also offer extended repayment terms for defaulted loans or for borrowers experiencing long-term economic hardship; loan consolidation plans; and temporary reduced payment plans and graduated repayment plans comparable to the federal Income Based Repayment (IBR) and Income Contingent Repayment plans.
The EFC said that one lender provides short-term and long-term relief repayment plans for borrowers who are delinquent. “Under these plans, borrowers are allowed to make only a fraction of their payments for an extended period of time, some delinquent payments are forgiven, or interest not covered by the lower payments is forgiven,” according to the press release.
Yet even with these options being already available to borrowers, default rates for private student loans in securitizations remains elevated. Private student loans represent about 10% ($25 billion) of outstanding student loan ABS, according to a Citigroup March 28, report.
Moody’s Investor Service said in March 19, report that the private student loan default rate remains higher than pre-recession levels, despite showing some slight improvement this year.
Moody’s Private Student Loan Indices track ten years of credit performance data on 68 private student loan securitizations that Moody's rates, representing over $40 billion in outstanding pool balance. The annualized default rate in fourth-quarter 2012 was 4.5%, down considerably from 5.2% in 4Q 2011, for the third consecutive quarter of year-over-year improvement.
"But the rate remains nearly twice as high as it was prior to the recession," said Moody's AVP-Analyst Tracy Rice in the report.