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CBA Letter to OCC, FDIC & Fed Requesting Flexibility on Student Loan Repayment Options
The Consumer Bankers Association (CBA) appreciates your past willingness to discuss how to assist private student loan borrowers experiencing difficulty repaying their loans. We believe it is important to work to address the challenges we are seeing in today’s economic environment.
Private student loans only account for approximately 7 percent of today’s student loan originations, compared to the federal government’s 93 percent market share. In addition, recent data shows default rates for private loans around 4 to 5 percent compared to the Department of Education’s fall report highlighting the three year default rate of 13.4 percent for federal loans. While private student loans are clearly performing better than federal student loans, some troubled student loan borrowers are still struggling. CBA believes additional flexibility for banks to assist borrowers is appropriate given the unique nature of the asset.
Specifically, we propose that banks should be granted greater flexibility to work with borrowers experiencing financial difficulty who are recent graduates, or early in their careers, when it is more difficult to enter the labor force and establish financial independence and stability. This could be structured in a way designed to assist borrowers who are looking for their first job, or who are between jobs, during a 3-year period following graduation, while at the same time maintaining adherence to safety and soundness principles at regulated financial institutions.
Safety and soundness principles rightly seek to ensure banks are accurately portraying the status of their loan portfolios and to prevent banks from showing non-performing loans on their books as performing assets. Lenders have found that student loans are unique financial products with characteristics that lead to repayment situations different from other asset classes and that generally do not merit troubled debt restructure (TDR) accounting treatment, but current guidance limits repayment flexibility and forces the adverse TDR treatment.
To read the full Comment Letter, download the PDF.