Dad overwhelmed by dead student's loans
A father co-signed for the private student loans, but now he can't find out who owns the loans and exactly how much they are.
We shared the story about a father who co-signed his son's private student loan and was still obligated to pay after the son had died. The bank forgave the loan six years later -- only after the family launched a public petition drive.
A new and similar story, from ProPublica, has an added complication. A grieving father who co-signed for his now deceased son's considerable private student loans can't even find out who owns those loans -- just in case they'd agree to let him off the hook (and, no, taxpayers won't be stuck with it if they do).
Francisco Reynoso, who earned $21,000 last year as a gardener, is legally responsible for paying off student loans in excess of $167,000 because he co-signed. If lenders don't forgive the debt, his only hope is a hard-to-get hardship discharge in bankruptcy court. Student loans generally are not dischargeable in bankruptcy.
Just as happened with home mortgages in the boom years before the 2008 financial crash, his son's student loans have been sold and resold, and at least one was likely bundled into a complex Wall Street security. But the trail of those transactions ends at a wall of corporate silence from companies that include two household names: banking giant UBS and Xerox, which owns the loan servicer handling the bulk of his loans. Left without answers is a bereaved father.
The son -- Freddy Reynoso, an alum of the Berklee School of Music -- was the first college grad in his family. He was killed in a car crash in 2008 while on his way home from a job interview, ProPublica says. (Post continues below.)
His federal student loan debt was forgiven as a matter of course. But not so the private student loans. Debt collectors went after the father even though he had hired an attorney to help sort through this mess. "By law, debt collectors must go through a debtor's attorney if one has been hired," ProPublica says.
"Despite the help of a lawyer, Reynoso has not been able to determine exactly how much he owes, or even what company holds his loans," the article says.
Here's what ProPublica could find out:
- One private loan was originated by Bank of America and sold to First Marblehead, which bundles loans and sells them as securities. It hasn't said what became of Freddy's loan.
- The rest of the private money was loaned by Education Finance Partners. That loan was acquired by UBS in 2008, then sold in 2009. UBS says it is prohibited from identifying the buyer. ACS Education Services, a subsidiary of Xerox that is servicing the loan, most likely knows who owns it but so far hasn't said.
One commenter at ProPublica raised issues that many of you are probably wondering about.
Here's a question: Why did the bank allow a gardener whose entire annual income would barely cover the semester's tuition ($17,725 for Fall 2012 before fees, according to their website) … co-sign for the loan?
I might also ask how the financial aid office allowed (the son) to take on that kind of loan, knowing it'd be impossible to pay back.
Some readers lamented that Freddy did not have life insurance. Another reader said:
NEVER, EVER co-sign a student loan for your kids … NEVER.
As tragic as this is, these student loan providers trick parents into co-signing without parents understanding that if the student defaults for whatever reason they are on the hook.
Many parents have had their lives derailed by these realities.
More on MSN Money:
Only a fool would co-sign on loans for $160k+ when he only makes about $20k/yr. And only a fool for a banker would do the same. I don't have any sympathy for either side.
About the only thing student loans have accomplished is to drive up the demand (and price) of education. In the end, if there was no such thing as student loans, higher education would obviously be alot less expensive. Every time loans become easier to get or the feds throw tax deductions or credits at education, the price of education goes up by about the same amount.
The banker that wrote the student loan was no fool. As long as the loan could be sold at a profit, the bankster did OK. Banks are in the business to make money, at anyones expense, even this 20K a year gardener.
This is no different when the banks were selling mortgages, with no money down, no verifiable income, and reselling the mortgages, at a fat profit. Now that the mortgage business has slowed down, student loans are the latest banks, huge profit machine.
Second: They wouldn't get another nickle until they verified the debt. Who holds the note? Do they LEGALLY hold the note? What is the principal and interest rate? If they couldn't prove they legally hold the note, and they have a legal right to collect debt in HIS state, (which all debt collectors can't legally do just anywhere, i.e. here in PA they have to be registered with the state to legally collect here, if not, its on them), they also wouldn't get another nickle from me.
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