On March 6, the Student Borrower Protection Center, Americans for Financial Reform Education Fund, the National Community Reinvestment Coalition and the National Consumer Law Center sent a letter to the Alternative Reference Rate Committee (AARC) urging the AARC “to consider the unique risks inherent to the private student loan market and to prioritize the protection of student loan borrowers” in connection with the change from LIBOR to the new Secured Overnight Financing Rate (SOFR) index.
In anticipation of the elimination of LIBOR, the Federal Reserve Board and the Federal Reserve Bank of New York (FRBNY) convened the AARC to identify alternative indices to replace LIBOR.The consumer groups assert that student loan borrowers have limited avenues “for borrower recourse in the event of harm resulting from the LIBOR transition.”
The groups urge the AARC to:
- Take steps to ensure that borrowers will not face higher rates due to the transition from LIBOR, such as by recommending that there be at least a one-year transition period for the introduction of a spread adjustment to SOFR
- Insist that industry be more transparent, such as by providing details to the AARC and borrowers regarding when they will indicate whether they will accept the AARC’s recommendations and when they will transition to a new index
- Remain committed to the adoption of a replacement index that is based on actual transaction data