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Private Student Loan Borrowers Face Hidden Costs, Uphill Battle for Relief

Borrowers held more than $120 billion in private student loan debt in 2019. (Brian Jackson/Adobe Stock)
Borrowers held more than $120 billion in private student loan debt in 2019. (Brian Jackson/Adobe Stock)
May 29, 2020

PORTLAND, Ore. - Congress has granted federal student loan borrowers a reprieve during the pandemic, but the market has been less forgiving for people with private loans.

Stephanie O'Donnell-Peters is a massage therapist in Portland, out of work since mid-March. Combined, she and her husband have student-loan payments of $1000 a month.

When their loan manager, Firstmark Services, offered to pause payments for three months, they agreed - not realizing that interest would accrue at 7.5% each month.

"To have to make a $1,000 payment - or probably closer to, like $1,200 or $1,300, at that point - I just don't know how that's going to work," says O'Donnell-Peters.

O'Donnell-Peters, who is a self-employed small business owner, has struggled to get unemployment from Oregon's overburdened system. The forbearance on the couple's loans ends this month.

Firstmark Services did not respond by deadline to a request for comment.

Borrowers held more than $120 billion in private debt in 2019, according to analytics company MeasureOne.

Jessica Thompson with The Institute for College Access and Success says private education loans have fewer protections than federal loans, such as being able to discharge the debt in the case of permanent disability. She says folks give up their safety net when they take out private loans.

"You are at the mercy of your lender and what they're willing to work with you to do to keep you from defaulting basically," says Thompson. "That's very different than Congress looking at what essentially is directly on their books."

Thompson notes that help for private borrowers would require Congress to step in and make payments to private entities. But she says there is a small chance of relief.

House Democrats' $3 trillion HEROES Act includes debt cancellation up to $10,000 for distressed borrowers, although Senate Republicans have balked at the bill's price tag.

Thompson says the struggle to get aid underscores the nature of private student loans.

"It highlights what we have long known is a lot of risk inherent in these products," says Thompson. "They are market-based products."

She urges people with private debt to contact their lenders and stay informed about their options.

Support for this reporting was provided by Lumina Foundation.

Eric Tegethoff, Public News Service - OR