WASHINGTON (1/30/15)--The National Credit Union Administration, in concert with the other federal financial regulatory agencies, and in partnership with the State Liaison Committee (SLC) of the Federal Financial Institutions Examination Council, issued guidance Thursday on private student loans with graduated repayment terms at origination.
The guidance is intended to provide credit unions and other private student lenders with principles that financial institutions should consider in their policies and procedures for originating such loans.
The joint-regulators' guidance notes that while graduated repayment terms are available under certain federal student loan programs, credit risk associated with loans guaranteed and originated by the federal government differ from that of private student loans.
"Accordingly, some extended repayment features offered under the federal student loan programs may not always be appropriate for private student loans," the guidance says.
Also: "Financial institutions that originate private student loans with graduated repayment terms should prudently underwrite the loans in a manner consistent with safe and sound lending practices.
"Additionally, financial institutions should provide disclosures that clearly communicate the timing and the amount of payments to facilitate a borrower's understanding of the loan's terms and features."
The guidance recommends the following principles for private student loans with graduated repayment terms at origination:
The guidance was issued by the NCUA, Federal Reserve Board, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the SLC.
Read more guidance details here.