Magazine article American Banker

U.S. Keeping Chicago Bank's Student Loans in Limbo

Magazine article American Banker

U.S. Keeping Chicago Bank's Student Loans in Limbo

Article excerpt

With the federal guarantees on a large chunk of its student loan portfolio in limbo, River Forest Bancorp saw its nonperforming assets shoot up last year.

The experience has been a study in patience for the $2.1 billion-asset company, which owns nine banks in Chicago and its suburbs. For two years, since it was discovered that employees falsified some collection records, it has awaited word from the Department of Education on whether more than $6.8 million in student loans have lost their guarantees.

Because of the uncertainties, the bank included those loans in nonperforming assets at yearend 1995. A year earlier, the company's nonperforming student loans totaled just $131,000.

In mid-1994, the company discovered that some calls employees said they had made to delinquent borrowers didn't match the actual calls made, despite a tracking system to locate such discrepancies.

Student loan servicing rules require certain collection actions, including the number of calls to delinquent borrowers, to maintain their guarantee.

"I think that we were being quite diligent about the way we were handling this," said Robert J. Glickman, president and chief executive. "We didn't really contemplate the idea that our employees would cheat us."

Lenders are required to make eight calls to each delinquent borrower. All of the delinquencies in question got seven calls, but not the eighth. "If you actually did call people seven times ... how many would wake up on the eighth call? …

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