Federal regulators announced guidance Thursday that provides principles institutions should consider in setting policies and procedures for originating private student loans with graduated repayment terms.
The five banking and credit union regulators said in a press release that lenders should take into account the "competitive job market, traditionally low entry-level salaries, and higher student debt loads" that "can contribute to some borrowers preferring greater flexibility with their payments as they transition into the labor market."
In addition, graduated repayment terms are structured to "provide for lower initial monthly payments that gradually increase."
Regulators added that 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. " Finally, 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, regulators said.