Feds tell private student lenders to work with distressed borrowers

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Current regulations allow for lenders to modify, delay or defer loans, especially if the borrower has fallen on hard times.

That flexibility should be considered especially for students who might have had a difficult time finding a well-paying job right after school and need some relief from their bills.

“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 regulators said.

The agencies added that they “will not criticize” banks that work with borrowers, even if the end result leads to an otherwise troubling credit status.

The institutions should also make sure that borrowers understand their options, the agencies said, and the ways for them to try and modify the terms of their loan.

Lawmakers and advocacy groups have urged the Obama administration to keep a watchful eye on private student lenders.

Private student loans make up just about 15 percent of the market, but they can be less flexible than federal loan programs and may charge higher interest rates and come with fewer protections.