What If Your Student Loans Survive You?
Debt that may outlast you.
Here’s a thought: you complete your college education and enter the workforce with student loan debt exceeding $50,000. You figure that by the time you reach 45, you’ll have all of your loans paid off. If you’re lucky, you’ll have a few debt-free years in the interim before your children enter college, enough time to set aside some money for their higher education as well as for your retirement.
But, life has a way of throwing surprises at you. At age 30, you receive an unsettling medical diagnose showing that you have inoperable cancer and even with treatment you aren’t likely to see your children grow. After fighting a gallant battle you die, just ten years after graduating college and only seven years into you marriage. Your wife and children are devastated, but at least you had enough insurance to pay for your burial and support your loved ones for a few years.
Now comes the really bad part: you’re not only gone, but your family is left with some unpaid debt. Of the remaining $25,000 in student loan funds left to pay, more than $20,000 is in private student loans. Upon your death and with sufficient proof, the federal loans are paid off, but your private loans are part of your estate. Worse, your bank refuses to forgive the debt and there is nothing your widow can do about it.
Gruesome as this scenario is, there is truth with this practice. Upon the death of the private student loan borrower, the estate or co-signer may be responsible for making payments on the loan.
That fact was made evident in the August 7, 2010, issue of The Wall Street Journal where the story of Christopher Bryski was told. Bryski was three years into his degree at Rutgers University when he fell and hit his head. Brain injuries followed by a coma and his death two years later didn’t discharge what he owed his private student loan lender. His grieving parents lost a son, but they also gained responsibility for paying the loan back because the Bryskis had cosigned Christopher’s private loans.
By law, private student lenders are not required to discharge loans. A few lenders offer insurance, but most students and their families are not told about this option. Few parents imagine that they’ll outlive their healthy children; if pressed, most would think that private student loans are paid off when a student dies. But, that usually isn’t the case.
Some lenders, including Sallie Mae, have amended their policies recently to forgive debt incurred with new loans. That policy varies from lender to lender, but there is no legal requirement in place mandating lenders to explain what happens if the student dies or to offer insurance to cover that possibility.
Legislation is being introduced that may change some of that. Bipartisan support is building for the Christopher Bryski Student Loan Protection Act (HR 5458), a bill being sponsored by U.S. Rep. John Adler (D., N.J.) and introduced into the House of Representatives in May. That bill, if it becomes law, would require lenders to explain fully the financial obligations of borrowers including co-signers and discuss insurance options. The bill falls short of requiring debt to be paid off, however. That could change before the final bill goes to the floor for a vote.
Christopher Bryski’s private student loans of $44,500 may mushroom to $85,500 before the debt is finally paid off due to interest charges and deferment costs. In the meantime, if you need to borrow any money whatsoever, read the fine print to find out if that debt will live on well after you have left this life.
Photo Credit: Maloq