Death Does Not Discharge Student Loan Debt
Plagued by bad press, the last thing student loan servicers need is more of it. Unfortunately, the hits just keep coming. A recent article in The Guardian described the death of a young man with student loan debt guaranteed by family friends that seemed to have been settled for five years prior to the servicer demanding payment. Though for private loans, the death of the borrower does not necessarily discharge student loan debt; for federal loans it does. In fact, for millions of Americans overwhelmed by federal student loan debt, death is one of the few viable ways to discharge their loans. Ameritech Financial, a document preparation company, offers less extreme solutions, including help in applying for and maintaining enrollment in federal programs such as income-driven repayment plans (IDRs) that can possibly lower monthly payments.
“There are a handful of companies servicing millions of loans, so it is understandable that stories like this emerge from time to time,” said Tom Knickerbocker, executive vice president of Ameritech Financial. “We have found that clients of large loan servicers sometimes have difficulty getting helpful advice and navigating their complex processes. With our expertise, we work with borrowers to help them find a program, such as an IDR, that may be their best option.”
The Guardian story described a college student who took out a private student loan in 2005. Family friends stepped in as guarantors. He graduated in 2010 and had just gotten a good job in 2011 when he tragically died in a car accident. His loan servicer sent out a letter of condolence to his family that also asked for proof of death and notification that “an applicable cosigner may be obligated to repay any loan(s) obtained through a private loan program.” After sending in all the required paperwork and certifications, the family thought the debt was settled and returned their focus to rebuilding their lives after their devastating loss.
But, in 2016, the family’s friends received a letter from the servicer that they owed the original amount of $39,605 plus an additional $9,219 in interest. There is often confusion for borrowers, and the stakes are very high. Many borrowers don’t know all of the differences between federal student loans and private student loans in the repayment process. With such an assortment of repayment programs and benefits available for federal borrowers, it can be catastrophic to learn that most private loans do not qualify for these repayment and forgiveness options.
Further, it is often the case that cosigners remain responsible for private student loan debt, even after the death of their consignee. But, in this case, the length of time elapsed and sensitivity for a grieving family come at a time when servicers are already facing challenges from states due to high interest charges, making inaccurate reports to credit companies and making repayments harder than necessary. For their part, servicers feel the challenges borrowers face are embedded in a student loan system that lacks transparency, does not incentivize graduation and has too many repayment options.
As this tension plays out, Ameritech Financial will continue to advocate for its clients, helping borrowers find the repayment plan that may be a better fit for them and hopefully lowers that monthly payment.
“It is difficult for a huge entity like a loan servicer to deal with each case individually, even though for each borrower the stakes are extremely high and very personal,” said Knickerbocker. “As evidenced by our high rates of customer satisfaction, we take great pride in treating each borrower like our most important client, finding them their best option and helping them get there.”
