Lenders see student loan relief too

Lenders feel relief too

President Biden’s long-awaited student loan relief package is expected to help millions of student borrowers reduce their debt. It could also have a big impact on the student loan industry. With repayments set to resume in 2023, borrowers now have an incentive to refinance their loans, which could help lenders like SoFi. SoFi shares rose 4.5% Wednesday on the news.

There’s still a lot of debt left to handle. The package includes the cancellation of $10,000 for people who earn less than $125,000 per year, with an additional $10,000 possible for those who received Pell Grants.

• Also included is a substantial new program that would enable borrowers who are unable to pay back loans to pay a maximum of 5% of their income.
• The administration extended the pause on student loan repayment until the end of the year, a feature that began in the early part of the COVID-19 pandemic in March 2020 under President Donald Trump and has since been extended several times.
• Borrowers have been waiting to see how much of their debt would be canceled and also when they’d have to resume making payments. Now that those borrowers know how much it is and whether they qualify, some of them are more likely to refinance now, said Will Sealy, CEO at startup Summer, which helps students manage their student loans.

Resuming payments could be challenging for some. Many younger borrowers became accustomed to not paying, said Harrison Hochman, CEO of Sparrow, which helps borrowers choose private student loans and refinancings. “Of all age ranges of borrowers that we support, they're the ones most anxious about payment resumption.”

• The repeated pauses in repayment have left the loan industry in a holding pattern, with federal loan servicers such as Navient, FedLoan and Granite State, as well as other lenders, pulling out of the business. “In response to the uncertainty, many companies left the student loan industry,” said Hochman, noting that a number of startups are trying to fill that void.
• It’s still unclear if Biden will resume repayments at the start of 2023. The issue has become a “bipartisan political Wiffle ball,” with neither party wanting to end the pause, Hochman said.

Even the cancellation could be an opportunity for tech to shine. Borrowers will have to apply for debt cancellation and show proof of income, which could present complications or delays for some. The White House says the application process will be available before the end of the year. Fintech companies could help by streamlining the application process. “What we're doing in student loans is what TurboTax and H&R Block and all of these tax companies have done,” said Tony Aguilar, CEO of Chipper, which helps borrowers pay back their student loans.

— Tomio Geron (email | twitter)

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