The Federal Deposit Insurance Corporation will be issuing a statement to banks soon urging them to work with troubled private student loan borrowers, FDIC risk management chief Doreen Eberley said Tuesday.
“Prudent workouts are in the best interest of the institutions and the borrowers,” Eberley told a Senate Banking Committee hearing on private student lending.
She said banks will be directed to make sure that borrowers have more lenient repayment options to avoid default.
At the hearing, North Dakota Democratic Sen. Heidi Heitkamp warned that with 90 percent of private student lenders requiring cosigners, “We’re mortgaging their parents’ future; we’re mortgaging their grandparents’ future.”
Sen. Sherrod Brown complained the largest private lender was borrowing at 1.5 percent and then turning around and charging students five times as much for the funds.
The session came a week before interest rates on some federal student loans are to double from 3.4 percent to 6.8 percent.
Consumer Financial Protection Bureau Student Loan Ombudsman Rohit Chopra called the amount of concessions offered by private student lenders to borrowers in danger of default “troublingly low.”
While private lending accounts for only 15 percent of student debt, the CFBP official said 81 percent of high-debt student borrowers use private loans.
He noted private student-loan borrowers who default early in their lives may face long-term personal financial hardships because it becomes more difficult for them to pass employment verification checks.
Chopra said student debt also can delay participation in employer-sponsored retirement plans.