By Benjamin Goad - 07/26/13 06:03 PM EDT
The Federal Reserve Board, Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency issued guidance Thursday to banks and other lenders, saying they should be prepared to help out unemployed or otherwise strained borrowers.
“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 regulators said.
The message, which could be a precursor to more forceful federal government action, follows hearing of the banking panel at which Johnson urged regulators to be vigilant in the student loan market.
“This is a welcome first step, but more needs to be done,” Johnson said in a statement issued Friday. “Nearly one million private student loans are in default, and while federal loans offer flexible relief during periods of hardship, most private student lenders do not offer the same options for struggling graduates.”
Private student loans make up 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.
The Consumer Financial Protection Bureau last week said the total outstanding student debt is now at $1.2 trillion.
Regulations now on the books allow lenders to modify, delay or defer loans if borrowers are struggling to make payments.