Private Student Loans and New FFIEC Recommendations
Posted by Paul Dockry
On January 29th, 2015 the Federal Financial Institutions Examination Council (FFIEC) regulatory agencies (FRB, FDIC, OCC, NCUA, CFPB) released new recommendations for institutions lending and servicing student loans. The guidelines focused on how much latitude to offer borrowers struggling with repayment because of lost income or other factors. We welcome and support these guidelines not only because it’s the right thing to do, but also because it makes good business sense.
If you are a lender thinking of entering into the private student loan market, your program must take into account that borrowers may ask for payment flexibility due to short-term hardships such as:
- Reworking the repayment schedule
- Making reduced payments for a short time
- Temporarily postponing payments for reasons such as job loss or medical issues
Your strategy should proactively engage borrowers to guide them through their situation and define a solution that will satisfy all parties — so that they fulfill their obligations while your risk is mitigated and you are made whole. This begins during the application stage by including a variety flexible repayment options including graduated or income based options in addition to standard repayment. For undergraduate and graduate borrowers, continue connecting with them regularly throughout the in-school period keeping them aware of their outstanding balances, interest that is accruing and unpaid on their loan(s) and options for making payments during this period if they are able.
During the grace period, proactively reach out to borrowers congratulating them on their success and journey through the college experience and find out where they are at with respect to job prospects, income, and ability to begin paying on their loan(s). This will help to ensure orderly repayment, which repayment options are best for them at the beginning of repayment, and create a positive start to successful repayment of their student loan(s).
Private student loans are one of the most important investments an individual will make in their life. Make sure to present clear disclosures and information during the course of servicing their loan(s). Set up payment terms and options which align with borrower’s income at various points in time during repayment, and in a manner that avoids future payment shock. Helping these borrowers see the return on this investment can be achieved by providing transparency of all repayment options throughout the entire private student loan life cycle.