Banks push regulators for student loan flexibility

{mosads}In the letter, Hunt argued that student loans are unique financial products and should not be subject to the same definition of troubled debt as other types of loans. Many borrowers paying back private student loans are just entering the workforce and, especially faced with a slow-going economy, could take a while before they are able to pay back the loans in earnest.

As a result, Hunt asked financial regulators to give banks more flexibility to modify loan terms in the first years they come due to allow for lower payments and longer forbearance periods. Doing so could reduce defaults and save borrowers from damage to their creditworthiness.

“The uniqueness of the student loan product justifies more flexibility in the offering of forbearances, since economic conditions may, especially for those who are early in their careers, lead to a higher level of unemployment and underemployment,” he said.

Hunt emphasized that banks are not saying that all borrowers could be helped by that flexibility. But he contended that banks could be trusted to use more of their own judgment in granting assistance to struggling borrowers.

“In many cases, prolonging the inevitable only makes things worse. But there are a significant number of cases where borrowers can avoid default and bring their loan payments current if lenders have more regulatory flexibility to work with them,” he said.

The letter was sent to the heads of the Federal Reserve, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency.