NCUA Releases Supervisory Letter on Private Student Loans
December 12, 2013
Dec. 12, 2013
The National Credit Union Administration recently released Supervisory Letter 13-13, which provides guidance to the NCUA field staff on examining Private Student Loans (PSLs) and analyzing the associated risks.
Private student lending can be a valuable member service and a good source of revenue, but it does come with unique features and risk characteristics that are unlike most of the other consumer loan products. For example:
- PSLs have long-term maturities with a unique, purpose-based repayment structure to meet the specific needs of education financing. PSLs often have a deferment period that allows a student-borrower to postpone repayment, pay for interest only, or pay a fraction of the interest while he or she attends school (and a grace period of six months after graduation).
- Some PSLs are structured as a line of credit while the student-borrower attends school, and convert to a closed-end loan once school attendance and the subsequent grace period are completed.
- PSLs are exempt from discharge during bankruptcy under most circumstances.
- Student-borrowers generally have little demonstrated credit history.
- PSL repayment typically is dependent on an expectation of future employment and income.
- Many PSL lenders rely on co-signers (often the student-borrower’s parents) to compensate for the added risk involved with lending to unemployed borrowers who have limited credit history.
In the Supervisory Letter, the NCUA explains that PSLs can affect all seven risk areas, and specifies what examiners should be looking for in a safe-and-sound credit union PSL program. Examiners will first be focusing on the planning and evaluation of the program. Policies and procedures will be examined, as well as the monitoring and controls the credit union has in place for the program. And finally, the examiners will look the servicing and collection requirements that are unique to the PSLs.
Questions? Contact the Compliance Hotline: 1.800.546.4465, email@example.com.