Private student lenders are on track for some good years ahead, Democratic lawmakers said.
On Monday, Sen. Elizabeth Warren led some of her Democratic colleagues, including Sens. Bernie Sanders and Ron Wyden, in sounding the alarm on a potential influx of federal student-loan borrowers into the private lending market as a result of President Donald Trump’s spending law.
Trump’s legislation included a major overhaul to student-loan repayment, including capping borrowing on graduate and professional loans and condensing income-driven repayment options into two less-generous plans.
Business Insider previously reported that the changes could drive some borrowers away from federal lending and into the private lending market, which education experts said tends to have higher interest rates and riskier terms.
In letters first viewed by Business Insider, the lawmakers requested that the leaders of major companies that oversee private loans — Navient, SoFi, Sallie Mae, and Nelnet — provide updated information on their borrower portfolios and protections they have for borrowers in default or those who attended predatory schools.
“Student debt places a tremendous burden on borrowers, their families, their communities, and the U.S. economy, driving employment, spending, and housing decisions that have long-lasting negative impacts on borrowers’ financial health,” they wrote. “Placing a greater share of student loans into the hands of private lenders threatens to make these problems much worse.”
Once a borrower switches to the private market, they can no longer access programs available to federal borrowers like Public Service Loan Forgiveness and borrower defense to repayment, which allows a debt to be discharged if a borrower was defrauded by their school.
Sara Partridge, associate director for higher education policy at the left-leaning think tank Center for American Progress, previously told Business Insider that “private student loans often require a cosigner, so some students may not qualify, and they may have no options to fully finance and attend graduate school. So there is a possibility that for some students, this will be a barrier to accessing graduate school.”
Warren has previously come after private student lenders over accusations of predatory behavior that forced borrowers into unaffordable debt loads. Last year, she led efforts to hold Navient accountable over its process to discharge debt for defrauded student loan borrowers, accusing the company of denying borrowers relief with little explanation.
Student-loan borrowers have already faced major changes under Trump. The spending law eliminated the SAVE plan, which allowed for more affordable monthly payments, and the 8 million enrolled borrowers are once again seeing interest charges on their accounts after a yearlong pause. The administration also restarted collections on defaulted student loans after five years, leaving borrowers to face wage garnishment this year.
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