Multiple states have come together to enact initiatives aimed at prohibiting private student loan servicers from certain activities that will remain in place during the coronavirus (“COVID-19”) pandemic. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) did not address private student loans that are not federally-backed. Recently, New York worked out an agreement with private student loan servicers operating in the state to offer similar relief guaranteed by the CARES Act.
Modeling an agreement after the one that New York reached with private servicers, California, Colorado, Connecticut, Illinois, Massachusetts, New Jersey, Vermont, Virginia, and Washington now have joined together to enter into an agreement with some of the nation’s largest private student loan servicers to provide relief to borrowers impacted by COVID-19. The relief options include:
- Providing forbearance of payments for a minimum of 90 days;
- Waiving any applicable late payment fees;
- Agreeing not to report derogatory information (e.g., late payments) to consumer reporting agencies, although reporting forbearances is permitted; and
- Ceasing debt collection lawsuits for 90 days.
Recognizing that some student loan servicers are limited in their ability to take these actions due to investor restrictions or contractual obligations, the agreement commits servicers to work proactively with a loan’s investor to relax those restrictions, if possible.
The agreement applies only to borrowers who live within the nine states that signed on, but it is expected that more states will join over the coming weeks. Many student loan servicers already have been working with borrowers during this time period. One notable difference between the agreement and the CARES Act is that these relief options are not applied automatically. Instead, a borrower must contact a participating servicer to learn about the potential relief options available to him or her depending on the particular loan or investor.