When a person dies and their estate is settled, any remaining debt dies with them, including student loans. But there’s an exception: if a parent or other responsible grown-up co-signs a loan and the borrower dies a tragic young death, that co-signer is on the hook for the entire amount of the loan. That’s how co-signing works, after all. But after a Rutgers student died in 2006 after two years in a coma, most of his lenders (credit cards and student loans) deferred, then forgave his debts. Key Bank was the holdout, since the student’s father had co-signed his college loans at Key. Since 2006, the family has paid $20,000 of the $50,000 balance. It took an awful lot of negative publicity, but Key says that they will forgive the debt, and might not even put future families in the same terrible situation.
“Going forward, we will evaluate any similar situation involving a deceased student with outstanding loans – and we sincerely hope there are none – on a case-by-case basis,” a Key representative told the Newark Star-Ledger.
One potentially useful consumer protection might come out of this sad situation: the Christopher Bryski Student Loan Protection Act has been introduced in the New Jersey state legislature to prevent similar situations. Originally designed to forgive debts of dead students and graduates, the bill now only requires that lenders explain clearly what happens in the event of a borrower’s death.