NCUA Letter to Credit Unions 23-CU-08
Resumption of Federal Student Loan Payments
NASCUS Legislative and Regulatory Affairs Department
October 12, 2023
With federal student loan payments slated to resume this month, on October 11, the NCUA issued Letter to Credit Unions 2023-CU-08. In this letter, the NCUA encourages credit unions to work with borrowers who may be negatively impacted by the increase in total repayment obligations. It also notes that credit unions will not be criticized for their efforts to provide relief to borrowers when such efforts are conducted in a “reasonable manner with proper controls and management oversight consistent with consumer financial protection requirements.
To ensure credit unions remain safe and sound and operate in a fair manner, the NCUA is providing the industry with the following strategies when evaluating exposure to borrowers facing payment stress associated with federal student loan repayment.
Risk Management Principles
The NCUA’s 2023 Supervisory Priorities indicate NCUA examiners will review the safety and soundness of existing lending programs at credit unions, adjustments to underwriting standards, portfolio monitoring practices, and loan workout strategies. Examiners will also review policies and procedures related to the Allowance for Credit Losses.
Risk Assessment
The letter indicates credit unions should assess aggregate exposure to borrowers with federal student loans and provides recommendations for analysis including:
- Identifying borrowers with large student loan balances relative to income;
- Reviewing borrowers’ credit bureau information;
- Querying member transaction history prior to the repayment pause with payments from their credit union account; or
- Considering other indicators such as the number of members with private student loan payments.
Borrower Outreach
The letter encourages credit unions to consider contacting borrowers to inform them about the credit union’s eligibility standards and processes for requesting loan modifications. It also provides credit unions with various resources to provide borrowers, including researching repayment obligations and applying for loan forgiveness.
Underwriting and Modifications
The letter states that credit unions should apply prudent underwriting and loss mitigation strategies for borrowers experiencing financial difficulty and struggling to make their loan payments. It encourages credit unions to use well-structured and sustainable loan modifications that are in the best interest of both the credit union and the member.
Portfolio Monitoring
Credit unions should identify and monitor higher-risk portfolio segments and update the board on any relevant risk exposure in the following areas, including, but not limited to:
- Private Student Loans;
- Credit card balances or other debt obligations that increased during the student loan repayment pause or that increased after the repayment period resumed;
- Adjustable-rate loans that have similar payment reset time frames; or
- Elevated debt-to-income ratios or low credit scores.
Allowance for Credit Losses
Finally, credit unions need to consider whether the risk associated with federal student loan repayment is adequately captured in the Allowance for Credit Losses, as detailed in Accounting Standards Codification Topic 326.