Banking regulators urged financial institutions on Thursday to work with private student loan borrowers facing financial hardship by offering lower or more flexible repayment terms and reduced interest rates.
“As with other consumer lending activities, the agencies encourage financial institutions to consider prudent workout arrangements that increase the potential for financially stressed borrowers to repay private student loans whenever workout arrangements are economically feasible and appropriate,” the regulators said. “The agencies will not criticize financial institutions for engaging in prudent workout arrangements with borrowers who have encountered financial problems, even if the restructure loans result in adverse credit classifications or troubled debt restructurings in accordance with accounting requirements under generally accepted accounting principles.”
Private lenders hold approximately 15 percent of all outstanding student debt, and the federal government holds the rest. The guidance could help ease the concerns of private lenders, which have been reluctant to modify loans out of fear that it could increase their capital requirements, The Wall Street Journal reports.
The regulators also urged institutions that have loan modification programs to provide borrowers with information that explains their options, eligibility and the modification process.
“Such information should be clear and easily accessible to borrowers and should include information on how to contact the lender or servicer to discuss the programs that might best fit their specific needs,” the regulators said.