Federal regulators are pushing student loan lenders to modify payment terms for some students. The Federal Deposit Insurance Corp. (FDIC), the Federal Reserve, and the Office of the Comptroller of the Currency pressed lenders to be more forgiving in repayment terms like; extending deferments, lowering interest rates, and making the payments lower over longer periods of time.
Of the $1 trillion of total student debt in America, private banks carry 15 percent. The majority of that 15 percent is owned by Sallie Mae, Wells Fargo, and Discover Financial Services. And because regulators are “concerned that some borrowers are struggling to repay loans” they are urging the lenders to help those to whom they’ve lent money. Not surprisingly, the federal regulators have gotten some pushback from lenders.
The lenders are reluctant to assist borrowers because they fear a negative financial and credit backlash. “Companies have worried that modifying a loan might force them to categorize it as a troubled asset,” noted Shelley Repp, president of lender representative group, the National Council of Higher Education Loan Resources. The lenders believe that if they modified loans, they would have to increase capital to prevent a default.
Regulators are saying the exact opposite; that if the lenders are careful about the modifications, it will actually “be viewed favorably on a bank’s books.” But lenders say that there are loan-modification programs in place and note that “the delinquency rate on private student loans has fallen since the recession.”
There seems to be a refusal with each party to budge the other way, and the regulators and lenders remain deadlocked while lawmakers, lenders, and regulatory groups struggle to find an agreeable solution to only one aspect of the student loan crisis.
In recent months, numerous Congressional members have been pushing to lower the current interest rate on student loans, which is currently 6.8 percent. Today, Congress will come to a final vote that will decide whether or not to lower the rate to 3.9 percent.
The bill being voted on would tie student loan interest rates to the financial market. This has caused a concern among some in Congress because should the vote get passed, Congress would no longer be able to set the rates and would rise with the economy. Republicans, almost wholly, view the bill as a “victory,” whereas Democrats seemed indifferent.
House Democratic leader Nancy Pelosi said that this “isn’t the bill we would have written, but it is a bill that can pass and will have Democrats voting for and against.”
Josh is a writer and researcher with Ring of Fire. Follow him on Twitter @dnJdeli.
