Sallie Mae Opts Not To Go After Family Of Dead Woman For $120K In Student Loans

As we wrote last week, while many parents consider it a no-brainer to co-sign their children’s student loans, that decision can come back to bite them later. And if that child passes away, there’s little stopping loan servicers from piling debt on the parents’ grief. But here’s one story where Sallie Mae ultimately opted to not go that route.

The Newark Star-Ledger’s Bamboozled column has the story of a New Jersey family who lost their daughter in 2010 at the age of 24. When she died, the daughter still had a balance of around $120,000 due to Sallie Mae.

Unfortunately, her father and grandmother had co-signed for the money, and Sallie Mae was looking to them to continue paying it off. But while their daughter had been able to score a decent job right out of college, earning enough to make her loan payments, her parents’ financial situation is not as sound.

“We are in the process of selling our home in a short sale, meaning our mortgage is higher than the value of our home,” the mom tells Bamboozled.

To keep current on the payments, the late woman’s 65-year-old father recently went back to work.

The family tried contacting Sallie Mae but say their calls were redirected to call centers in the Philippines where no one seemed to know what they were talking about.

But after reading about how Sallie Mae had forgiven a family in a similar situation, the family contacted Bamboozled, which was able to get someone at the loan servicer to listen to their story.

Sallie Mae reviewed the case and decided to write off the entire loan.

Bamboozled asked for an explanation for the change of heart and was told, “This is a tragic circumstance that no parent can fathom when investing in a child’s education, and we have reached out to the family with assistance.”

While that is awfully sweet of Sallie Mae to forgive the loan, we have a pretty good feeling that it’s only doing so because the media got involved. It and other student loan servicers need to have clear review procedures for these situations. They obviously have a right to recoup the loan, but co-signers should also be able to at least make their case for a reduction.

College debt after death not a singular concern [NJ.com]

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  1. Nigerian prince looking for business partner says:

    It seems like financial aid advisers should start recommending students & parents buy term life policies for those with co-signed loans. A $100k policy with a 15-year term for an 18 year old should be pretty cheap.

    I imagine the same thing would be a good idea for parents with PLUS loans or 2nd mortgages used to pay for their child’s education.

    • JennQPublic says:

      Would they still cover it in case of suicide? As far as I can tell, the young lady in this story ‘died suddenly at home’.

      • Nigerian prince looking for business partner says:

        I think it depends on the individual policy. I believe our policies had a two year exclusion period but outside of that didn’t have an explicit suicide clause. I haven’t looked at them in years (they’re locked in our safe), so I don’t remember the exact language.

      • RandomHookup says:

        “Sudden death” isn’t always a suicide. An undiagnosed heart condition can do you in just like that.

        • thomwithanh says:

          My former fiancee died in her sleep from undiagnosed acute bronchitis – that combined with her sleep apnea and asthma and everything was in the wrong place at the wrong time.

      • George4478 says:

        That’s one of those myth propagated by TV crime shows. Life insurance policies commonly cover suicide after an initial period of time. Mine, for example, has a one year timeframe in which I would not be covered.

        • Willow16 says:

          Yep. I have a friend whose husband committed suicide but, because he had the policy for many years, she did receive the money.

    • thomwithanh says:

      PLUS loans are forgiven if the student dies… they’re federally guaranteed

    • Loias supports harsher punishments against corporations says:

      That’s actually a really good idea. I would support a requirement by that for co-signed loans either by law or by policy on the loan for loans over a certain amount.

  2. AustinTXProgrammer says:

    It sounds like co-signed student loans may need a pricing adjustment to automatically include credit life.. With a very explicit opt out if a family decides to insure the life’s of their loved ones independently.

    • ARP says:

      That would be my vote. Put in automatic forgiveness with an opt-out for a small discount.

    • huadpe says:

      No, that’s not the best way to structure it. If the kid defaults on the payments, then they’ve defaulted on the life insurance, and then if they die, the co-signer is left with the bill (since the insurance will be terminated for non-payment).

      The best thing you can do: NEVER CO-SIGN. If you can afford to pay for it, then just pay for it. If you can’t afford to pay for it, then you shouldn’t co-sign, since you’ll be paying for it anyway.

  3. msbask says:

    They obviously have a right to recoup the loan, but co-signers should also be able to at least make their case for a reduction.

    What case could you make for reduction? You co-signed a loan. The bank pays the school, now the bank that paid the school wants to be repaid.

    If I loan you the money to pay your daughter’s college bills, and she dies, do I not get paid back?

    • crispyduck13 says:

      Just to be clear – this is an awful situation, and I feel very bad for this girl’s parents.

      However, this forgiving of loans in cases of death sets a potentially difficult precedent. The writer is correct, there should be a set of rules lenders set up and follow in these cases, but I do not agree that the amount owed should be reduced or dissolved, even though that’s super great for the families who are lucky enough to get the media spotlight on their situation.

      This opens up the field for other fucked up situations that occur with co-signers, like people who co-sign for a relative and that person ends up in jail, or just plain walking out on their obligation, or a divorce situation where the party who wanted the loan decides to stick it to the other party and stops paying because they don’t care about their already tanked credit. What about those people? No pity for them?

      Nigerian prince has it absolutely correct, banks who are handling a co-sign situation should absolutely counsel the customers on the benefits of a small life insurance policy if there isn’t already one in place. I’d actually advocate banks start making this a standard requirement for a co-signed loan.

    • CommonSense(ಠ_ಠ) says:

      The person who is supposed to pay back the loan is dead.
      So the creditor should lose the money, not any cosigners that signed so someone could go to college.

      I will say WHO HAS $120K in loans??? WTF??
      If I go to and instate school, it would cost me about $60K to 80K after 4 years including all housing, food, books, transportation, etc.

      • msbask says:

        I think you don’t understand what a co-signer is.

      • sirwired says:

        You seem to be laboring under the idea that all the co-signer supplies is a signature on a form, like a witness on a will or something…

        The whole point of a co-signer is so the bank has someone legally committed to pay the loan if the primary borrower, cannot, for ANY reason, pay. This results in a fairly massive reduction in the interest charged for the loan.

      • Nigerian prince looking for business partner says:

        “If I go to and instate school, it would cost me about $60K to 80K after 4 years including all housing, food, books, transportation, etc.”

        The article said she went to Penn State.

      • Doubting thomas says:

        Your username does not match your statement.
        A co-signer is signing that they share responsibility for the debt.

      • RedOryx says:

        So what exactly do you think a co-signer is?

  4. JennQPublic says:

    Does this mean all co-signed student loans will be forgiven if the student dies before they are paid off? Or does one need to have a particularly tragic story?

    I’m glad these people don’t have to shell out $120k on top of losing a loved one, but what about everyone else?

    • ChuckECheese says:

      To be clear, in this case we’re speaking only of those who are dead. I have no problem with forgiving the unsecured debts of dead people.

      • Nigerian prince looking for business partner says:

        All debts or just student loan debt?

        If all debts were completely forgiven upon death, I doubt any bank would ever loan anyone over the age of 50 anything or at the very least would require some kind of medical underwriting for loans.

      • StarKillerX says:

        So making sure that your debts are resolved should you die is a waste in your view as the loaner should just eat the debt if you die?

        Should this extend beyond student loans to car, home, and even business loans?

        • ChuckECheese says:

          I said “unsecured debt.” A car can go back to the bank; a biz can be liquidated (maybe).

        • AustinTXProgrammer says:

          It works pretty well now. Secured loans get their collateral, unsecured loans have dibbs on the estate. In no way are heirs responsible for their ancestors debts.

          Co-signing makes it more complicated. In those cases Life insurance is important.

          I recently co-signed on my nephews car loan. If he kicks the bucket I’ll claim the car. If everything fails, I’ll pay off the loan, it wasn’t that much and wouldn’t be too much of my savings.

      • sirwired says:

        But this wasn’t an unsecured debt; it was debt backed by the assets and income of the co-signer. That’s kind of the whole point of getting a co-signer; in return for another source of payment, the borrower gets charged FAR less interest.

  5. Hi_Hello says:

    the problem here is that she took out a total of $120,000 in loan!?!

    If my grandkid ask me to co-sign a loan, any amount, I”ll laugh at them, and tell them to go find other ways to get your education.

    • JennQPublic says:

      I would consider co-signing only for a particularly studious and goal-oriented student.

      I would not help subsidize someone who just wanted an ‘education’. Too many youngsters use that time to party and learn about the world, and they don’t need student loans for that.

      • cara says:

        To Bativac: MY sister is the only thing that kept me in college by co-signing for my loans. I can’t work my way through college. I tried, and it almost ended in a trip to the hospital for suicide watch. Just understand that while some people can and will do it, others just simply aren’t in the right circumstances.

        And JennQ, that’s exactly how it should be. I actually cared for my education and I’ve been rewarded so far. However, my sister tried to party through school and flunked after one semester… My father immediately signed over the loans to her and said it’s your problem, not mine. That bit her in the ass for a loooong time.

        • Nigerian prince looking for business partner says:

          There’s nothing to be ashamed of about having student loans.

          I worked, went to National Guard drills, had GI Bill money (active duty), National Guard college assistance, Pell grants, a pile of scholarship, and still required loans. And this was a long time ago, back when in-state tuition was less than half of what it is now.

        • Doubting thomas says:

          I obviously don’t know all of your story, but someone who cant handle a brainless college job and college probably can’t take the stress of a real world work job either. I wouldn’t co-sign based on that person’s ability to repay the loan later in life.

          • crispyduck13 says:

            Maybe because one “brainless college job” does not, in any way, even come close to paying enough money to get you through college. Try 3 or more jobs. Try no sleep. Try arguing weekly with the financial aid office to keep your shit straight so you don’t get accidentally kicked out.

            Oh yeah, and don’t forget about the actual school work.

            • Bativac says:

              Yeah that’s pretty much mine and my wife’s experience. Work multiple jobs, get little sleep, end college with little or no debt.

              If it was my kid, sure. I’d consider co-signing a loan. Decent parents are supposed to help with good decisions their kids are making. But, say, my brother? Forget it. If he can’t work his way thru college, prospects aren’t real good post-college. I don’t owe him anything and I know him well enough to not want to get into that particular boat with him.

              Now, my wife’s sister? Different story. I would consider it for her, given her studious nature, work experience (which at 18 already includes having worked and saved enough to purchase her own car), and thoughtfulness in picking not the most expensive, prestigious college out there, but one nearby, a public school, with a good reputation and more affordable in-state tuition rates.

              I’m not opposed to helping anyone out but no way am I – or my wife – gonna be on the hook for someone’s expensive, irresponsible financial decisions, family or not.

              • Jane_Gage says:

                These colleges are like funeral homes, making up exorbitant prices with no justification. $125 for a book, $40 for a locker, need it or not. If/when I have a child I will pay for one year of community college. If she successfully completes it, the second. She can take out student loans for a state school and I will help pay them back if 1. she majors in something useful 2. she has a 3.0 or higher and 3. she graduates. No way I am paying, helping, or co-signing for adult day camp or a major in fashion merchandising from the Art Institute, fuck that!

    • Nigerian prince looking for business partner says:

      According to the article, she was earning $74,000/year before she died. That sounds like a pretty good return on her investment.

    • Bativac says:

      My wife’s family had the nerve to call her and ask her to co-sign her younger brother’s college loan. Her response was that she worked to pay her way thru college three or four years ago and he oughta be able to do the same – no way was she gonna be on the hook for $20k should he (who at age 23 has not yet held any kind of job) fail to pay it back.

      They weren’t real happy and I think his (now ex) girlfriend’s parents co-signed. There’s one born every minute, I guess…

  6. sirwired says:

    This is indeed a sad story, but it’s been said over and over (and mentioned in the brochure every co-signer is supposed to get): Don’t co-sign if you do not want to pay back the loan yourself, in full.

    I’m not sure what the “case” for reduction would be…

    • OutPastPluto says:

      This whole thing is just a reflection of how college students are in this strange limbo. On the one hand, they are not treated as fully adult. On the other hand, they aren’t treated completely as dependents. This is what leads to a mess like this.

      These are government gauranteed loans. They never should have required a cosigner to begin with.

      • Nigerian prince looking for business partner says:

        The big issue is they’re loans to someone with no credit history, no assets, minimal income, and could easily declare bankruptcy at the end of college. Without a third party backing the loan (federal government or co-signer) or special exemption from bankruptcy laws, no bank would ever issue the loans at anything even closely resembling an affordable interest rate.

        • ChuckECheese says:

          Yet not that long ago, the nature of these loans wasn’t a problem, because getting a college degree virtually guaranteed a job with a wage sufficient to repay the loans. With our now near-40-year wage stagnation, the banks are perhaps the only institution that tacitly recognize that nothing guarantees anybody a decent wage any longer. And if the banks were to stop loaning money to students, that would be a more-than-tacit recognition of the moribund economy.

      • sirwired says:

        I doubt they are govt. guaranteed loans. The guaranteed loans (Stafford funding) don’t require a co-signer.

    • sponica says:

      I’m going to have to double check my loan documents, but I’m pretty sure my Nana is only on the hook for the 10K she specifically cosigned for and not the rest I have with Sallie Mae. Despite the fact SM continuously tried to have me secure cosigners for the rest of my loans in order to lower my interest rate…

      My brain gets addled by cosigners who cosign for the entire 4 years…there’s no need for that.

  7. StarKillerX says:

    No big deal, I’m sure Barney Frank just add an extra $120K onto the billion in tax dollars he has funneled to Sallie Mae.

    I’m not sure why people who co-sign a loan, and don’t ensure that the loan is insured should be let off the hook. Yes their child died, I feel sorry for them, but not enough to excuse their loans.

    • Jane_Gage says:

      And the Ivory Tower, the source of all evil in this country, emerges smelling like a rose.

  8. Bsamm09 says:

    Student loan providers need to just start raising the rates for co-signed student loans since the co-signer means nothing.

    • msbask says:

      I agree with you and am sitting her shaking my head. What is the point of a co-signer if they have no legal liability?

  9. milkcake says:

    First, co-signing means you’re responsible. That’s why the lenders lend any money in the first place.

    This is off-topic, but with all these student loans not being paid off because students can’t get jobs, the lenders should be responsible. How? Well, don’t lend money to students whom they think will not be getting a job (or decent paying job). The way lenders should make money back is by taking 20% of the salary after the student graduates for 10 years (or until the student completely pays off if the student happens to get a job that pays a lot). If the lender can’t get all the money within 10 years? too bad for the lender, the student has to go live somehow at one point. If students can’t get a job? Well, that means lenders should just forgive the debt since they can’t pay anyway. It’s just holding these people with debt too much. But if this is what happens, then lenders will not lend money to random students with majors that won’t pay. Eventually, the tuition will have to go down to accomodate students who wants to pursue these degrees that doesn’t pay much. Have you wondered how unfair it is for a history major student to pay the same tuition as an engineering student? It costs far money to hire an engineering professor and all that equipments that go with it. The cost of history professor? Cheap. there are so many unemplolyed PhD history that anyone would take that job with little money. What do you guys think?

    • Bsamm09 says:

      Is this a serious post?

    • Hi_Hello says:

      history major pay the same as engineering ?? what school is this?

      the school I went to, different major, different price. The cost goes into the building they hang out most of the time and the access they get to certain resources.

  10. nicoleintrovert says:

    Is there not Credit Life/Disability options for student loans? I hate to be a jerk… but if you did not choose the option for Credit Life, I am sorry for your loss… but you are on the hook for the balance of the loan. That is what a co-signer does!

    I work for a credit union so I am not savvy to much of the government backed student loans, but there is a credit life option on ours.

    • AustinTXProgrammer says:

      Credit life is generally a bad deal when compared with normal term life. But people should clearly do one or the other.

  11. Maltboy wanders aimlessly through the Uncanny Valley says:

    “…co-signers should also be able to at least make their case for a reduction.”

    Using this reasoning, if she had lived and ended up being a CEO and making millions, then the lender should be able to make their case to increase the principle owed.

  12. missminimonster says:

    From 2001-2005, my dad took out PLUS loans to fund my tuition. He died in 2008 and everything he owed was forgiven even though it was technically my tuition. I know they probably don’t even offer PLUS loans any more, but I was under the impression that such loans get forgiven when you die.

    Mine are not co-signed. Maybe it was because the loans I persoanlly took out were for grad school. Still, I was always under the assumption, from the experience with my dad, that my loans would be forgiven if something happens to me before they’re paid off.

    I guess I’d better call and make sure…

  13. dilbert69 says:

    Doesn’t co-signing a loan require you to repay it if the other borrower stops making payments? I assume the daughter was not able to continue to make payments after her death, so what would you expect to happen?