Federal bank regulators said Thursday they will be lenient with private student lenders who are lenient with out-of-work and underemployed college grads.
In a joint statement, several agencies overseeing banks said they would not criticize financial institutions for creating “workout” arrangements with borrowers who have encountered financial problems. This holds “even if the restructured loans result in adverse credit classifications or troubled debt restructurings in accordance with accounting requirements under generally accepted accounting principles,” the agencies said in a statement.
Those agencies include the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.
They added that prudent workout arrangements are consistent with safe-and-sound lending practices and are usually in the long-term best interest of the financial institution and the borrower.
The announcement came one month to the day after FDIC risk management chief Doreen Eberley told the Senate Banking Committee the guidance was forthcoming.
In recent years, private student loans have amounted to roughly 8 percent of the nation’s total debt with the federal government accounting for the rest.
Of the private loans made for higher education, 90 percent have required co-signers, which has put a considerable number of parents and grandparents at considerable financial risk as many recent grads have not been able to find well-paying jobs.