Federal Banking Agencies Encourage Student Loan Forbearance

Federal bank regulators are recognizing the plight of student loan borrowers who are unemployed or underemployed and may not be able to begin repaying their private student loan debt shortly after leaving school.

The banking agencies issued a press release last week in which they encouraged financial institutions, whenever economically feasible and appropriate, to consider prudent workout arrangements that increase the potential for ultimate debt repayment. The release quotes the Uniform Retail Credit Classification and Account Management Policy, which applies to student loans, in noting that prudent workout arrangements and loan modifications “can be used to help borrowers overcome temporary financial difficulties.”

The agencies have pledged not to criticize financial institutions for engaging in prudent workout arrangements with borrowers who have encountered financial problems, even if the restructured loans result in adverse credit classifications or troubled debt restructurings in accordance with accounting requirements under generally accepted accounting principles (GAAP).

The release urges institutions that have student loan modification programs, or other options for those struggling with repayment, to provide borrowers with practical information that clearly explains the basic options available, general eligibility criteria, and the process for requesting loan modification.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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