Why is all the information I have
is always depressing? The New York Times
had a piece by Richard
Perez-Pena Tuesday morning on student loans coming due immediately if a
co-signer dies. I think the logic here is everything and everyone is terrible.
The article discussed the impacts of the death of a co-signer (parent) on
the student loan borrower. Borrowers, even those with good payment records, can
be forced into default after a demand of full repayment of their loans
following the death of their co-signer. Obviously, this is occurring in the
private market because we can’t have nice things.
Everyone applying for a private school loan needs a cosigner because the
borrower is often young, with little income, and very little credit. Borrowing
from the feds usually doesn’t require a cosigner because BIG GOVERNMENT. The
Consumer Financial Protections Bureau released a report on Tuesday that pointed
to a provision in private loan contracts: “If the co-signer dies or files for
bankruptcy, the loan holder can demand complete repayment, even if the borrower’s
record is spotless. If the loan is not repaid it is declared to be in default
doing damage to the borrower’s credit record that can take years to repair.”
Sounds totally, fair, guys. Also, this is completely legal. At this
point, we don’t seem to know how common this practice is, but it appears to be
a growing trend based on anecdotal evidence. The loan companies appear to be going
through public records of deaths and bankruptcies and then generating letters
of repayment and default notices.
The article notes this isn’t exactly in the best interests of the
lenders, but we don’t know if someone is winning here…probably. Americans owe
about $150 billion in student loans to private lenders. Both private and
federal loans are transferred to loan servicing companies. The largest private
lender (both of private and federal loans) is Sallie Mae. Sallie Mae wasn’t responding
to emails about this earlier in the week.
Some borrowers are able to have their loans released from the co-signer
requirement after a few years of demonstrated earnings and credit history. They
can also transfer the loans to a new co-signer. However, most borrowers aren’t
aware of these options, and the lenders aren’t trying to help them figure this
out.
The article concludes by discussing the parallels between the student
loan industry and the mortgage industry. There is a bit of, the banks started
to take risks on risking borrowers. However, another interpretation of this is
the cost of higher education became ridiculously high, and the only way to get
an education was to take out risky loans due to social economic inequity.
Lenders were predatory leading to the mortgage crisis, and they are being
predatory now.
