By Tara Thwin-Paljor
Last week, three major banking agencies – the Federal Reserve Board, Federal Deposit Insurance Corporation and Office of the Comptroller of Currency – issued a statement that financial institutions should work with private student loan borrowers in order to make their payments more affordable. Many student loan borrowers find it harder to make their payments during a slow economy or after they leave school. Private loans don’t get the flexible repayment options available for federal loans. Thus, the agencies state that it would be in the best interest of all parties if financial institutions worked alongside borrowers in those circumstances.
Some banks have student loan modification programs, or give students other options for repayment. But the agencies want these institutions go a step further and provide information to borrowers on:
- Their available options
- The general eligibility criteria
- The process for requesting a modification
The question that remains now is: will this change anything? On one hand, this undermines the argument that banks are limited in their ability to modify student loans because of rules from their regulators. Now that their regulators are saying that it is fine for them to help borrowers, perhaps this may finally push banks to take action. Students will be better able to pay back their loans, and the banks will have fewer defaults to deal with.
However, it remains questionable that these institutions will actually work with borrowers just because they are encouraged to do it. Recommendations can be ignored, and institutions may not have the incentive to help private student loan borrowers. Banks have no legal obligation to help student loan borrowers.
We at Consumers Union advocate for more comprehensive reform of the student loan system. While we acknowledge that this is a good first step, policymakers and regulators must act to mandate real change.
Do you or someone you know have student loans? Have you ever had trouble with bank-issued student loans? If so, tell us in the comments.