Federal bank regulators are recognizing the plight of student loan borrowers who are unemployed or underemployed and may not be able to begin repaying their private student loan debt shortly after leaving school.

The banking agencies issued a press release last week in which they encouraged financial institutions, whenever economically feasible and appropriate, to consider prudent workout arrangements that increase the potential for ultimate debt repayment. The release quotes the Uniform Retail Credit Classification and Account Management Policy, which applies to student loans, in noting that prudent workout arrangements and loan modifications “can be used to help borrowers overcome temporary financial difficulties.”

The agencies have pledged not to criticize financial institutions for engaging in prudent workout arrangements with borrowers who have encountered financial problems, even if the restructured loans result in adverse credit classifications or troubled debt restructurings in accordance with accounting requirements under generally accepted accounting principles (GAAP).

The release urges institutions that have student loan modification programs, or other options for those struggling with repayment, to provide borrowers with practical information that clearly explains the basic options available, general eligibility criteria, and the process for requesting loan modification.

Ballard Spahr attorneys regularly counsel financial institution clients on loan workout and safety and soundness issues and on matters specifically relating to student loans. For more information, please contact Keith R. Fisher at 202.661.2284 or fisherk@ballardspahr.com, or John L. Culhane, Jr., at 215.864.8535 or culhane@ballardspahr.com.

Copyright © 2013 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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