The federal bank regulatory agencies have encouraged financial institutions to work constructively with private student loan borrowers experiencing financial difficulties. Prudent workout arrangements are consistent with safe-and-sound lending practices and are generally in the long-term best interest of both the financial institution and the borrower. The Uniform Retail Credit Classification and Account Management Policy (Retail Credit Policy), which covers student loans, permits prudent workout and modification programs, noting that “... extensions, deferrals, renewals, and rewrites of closed-end loans can be used to help borrowers overcome temporary financial difficulties.” The Retail Credit Policy indicates that banks should adopt their own standards for workouts and modifications and monitor the effectiveness of those standards.
Student loan borrowers who are unemployed or underemployed may not have sufficient financial capacity to service their private student loan debts shortly after separation from school or during periods of economic difficulty. 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 agencies will not 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.
Institutions that have student loan modification programs, or other options for those struggling with repayment, should provide borrowers with practical information that explains the basic options available, general eligibility criteria, and the process for requesting a modification. 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.