Friday, July 26, 2013

Private Student Debt Lenders Pressed To Make Repayment Easier

The Federal Deposit Insurance Corporation, the Federal Reserve, and the Office of the Comptroller of the Currency asked private student lenders to lower payments for those who are unemployed or having a difficult time repaying their loans on Thursday. They also suggested other methods of reducing the pressure on students such as postponing payments or lowering interest rates.

Private lenders only hold 15 percent of the loan debt accrued by students, and because they have stricter regulations about who can take out a loan than the federal government, only 3 percent of their borrowers have defaulted. The lenders worried that relieving the terms for students would create troubled assets, but the regulators assured them that if done prudently, there would be no repercussions. Yet whether the assets are considered risky or not, students will ultimately always have to repay a loan because it cannot be forgiven in bankruptcy.

The request comes at a time when lawmakers and other agencies are concerned about the growing issue of student debt, which has passed $1 trillion. Default rates for federal loans are at 13.5 percent. These factors have had a crippling effect on both students and the economy. Slowly recovering housing and auto industries could be boosted by graduates consuming more, but instead they are focused on becoming debt-free. The average repayment on a loan takes up to 20 years.

Studies have shown that avoiding loans can actually increase the chances of graduating on time, but parents aren’t spending as much on their kids’ degrees as they used to. Luckily, lawmakers are looking at new ways to pay for college that include postponed payments and saving early.

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