Several months ago, I wrote an article about how private student loan lenders penalize the unemployed. One way they do this is by forcing unemployed borrowers (or borrowers facing general financial hardship) to pay a “processing fee” when requesting forbearance. Some lenders force borrowers to pay this fee multiple times for each loan during a forbearance period. Since borrowers who cannot afford their payments often have no choice but to go into forbearance (which can result in rapidly accumulating interest), this has been a way for private lenders to completely take advantage of the most vulnerable borrowers.
Sallie Mae is a major private student loan lender that engages in this practice. Not only did Sallie Mae charge $50 per forbearance request, but it actually charged $50 per loan as well– so for borrowers with, say, five private student loans, they would have to pay $250 for each periodic forbearance request, which must be renewed every few months. Even worse (and this is truly infuriating), these charges were considered “administrative fees” that were not even applied to the student loans at issue. For the record, there is no fee of any kind to request forbearance for federal student loans.
Sallie Mae has now changed its policy. A resourceful young student loan borrower started a petition and generated media attention about Sallie Mae’s practices after she was forced to pay exorbitant forbearance fees during a period of unemployment. Bowing to the pressure and bad publicity, Sallie Mae has now amended its practices so that the forbearance fees are actually applied to the loan principal and not just pocketed by the multi-billion dollar company. While this is only a partial victory (the fees are still required), I see this as an example of a successful effort to bring bad student loan practices to light.
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