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After the passing of their 26-year-old daughter Jessica, last summer following her plight with cancer, John and Lori Roark received collection calls from Wells Fargo, claiming the parents owed $6,000–the amount Jessica had borrowed from the bank to pay for college. While mom and dad claim they didn’t cosign Jessica’s student loan, Wells Fargo initially said they were responsible for paying it back. Two others banks where Jessica had taken out private student loans – Sallie Mae and Missouri student loan company – promptly discharged Jessica’s outstanding loans upon hearing about the tragedy. But Wells Fargo held out.
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The fact is there is no law saying that banks are required to discharge private student loans when the borrower dies – and that is a big warning to any parent considering cosigning on a loan. They become part of the borrower’s estate and get paid through the estate settlement process (aka probate). If the loan has a co-signer it may end up being that person’s financial obligation. Different banks have different policies. Sallie Mae, for example, provides co-signers loan forgiveness if the main borrower dies or becomes permanently disabled. But Student Loan Corp., which is majority-owned by Citigroup, has no such policy.
Wells Fargo later cooperated with the Roark family in December 2010, as they announced new changes to the bank’s policy: It will forgive student loans upon death or incapacitation, even if the loan has a co-signer.
An important note to borrowers: Federal student loans can be cancelled if a borrower dies, according to Finaid.org. If a parent takes out a federal loan on behalf of his or her child and the child dies, the loan is also dismissed. Other conditions that grant a dismissal, according to FinAid.org’s Web site:
For more on our coverage of the student loan industry, check out:
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