To avoid facing financial ruin, it seems students taking out private loans are now supposed to gauge which family member will live longest.
Several borrowers of Sallie Mae student loans have spoken out about being automatically defaulted on their loans when reporting their co-signer had passed away. Some borrowers even faced defaults despite having made their payments on time for years.
While borrowers may be mourning the death of the co-signer who usually is a parent or grandparent, they are also stuck with the choice of paying Sallie Mae thousands of dollars in a matter of days or defaulting on their loans.
It is unfair and unreasonable to financially punish these former students since they could not have anticipated the death of their co-signer. When the default is reported to credit bureaus, the borrower’s credit score is lowered and can result in difficulties for future plans, such as finding a job and buying a home or car.
It’s equally unreasonable for Sallie Mae to force borrowers to bet their loved one will be alive for another 20 years, the average amount of time it takes a borrower to repay his loans, according to a report by the Urban Institute.
It shouldn’t be expected that a clause in the promissory note about auto-defaults will deter students and co-signers from seeking a way to afford school.
The Institute for College Access and Success reported that almost 1.4 million undergraduates borrowed private loans in the 2011-12 school year. Also, 90 percent of private loans borrowed have co-signers, according to the Consumer Financial Protection Bureau (CFPB). Given the amount of students relying on private loans, these auto-defaults could impact many students borrowing from private lenders such as Sallie Mae.
According to personal experiences sent to the Huffington Post, some borrowers who made regular payments sought to simply remove co-signers after their deaths, an action the loan contract claims is permitted if the borrower has made payments on time for a long period.
Yet, those with good payment records are being harassed to immediately pay a large sum, if not the entire amount.
One instance of unfair demands is that of Tony Muzzatti, reported by the Huffington Post. In spite of making loan payments on time for six years, Muzzatti was asked to pay $10,000 of his $60,000 loan after the death of his grandmother, who co-signed his loan.
In the case of Christopher Kibler, which was reported in the Huffington Post, Sallie Mae threatened to seize part of his father’s life insurance policy if his mother could not repay his $22,000 loan. Kibler had to file complaints with the CFPB and attorney general to try to resolve the issue.
One conclusion gathered from situations such as these is even when borrowers make regular payments, the death of a co-signer provides an opportunity for Sallie Mae to recuperate money through the deceased’s estates or insurance policies.
This is sickening and shows how a company takes advantage of borrowers who simply wished to attend school and the co-signers who wanted to offer security for school costs.
In an effort to resolve the complaints about auto-defaults reported to the CFPB, the consumer bureau is trying to push lenders toward allowing borrowers to find new co-signers rather than default.
The death of another person should not result in the auto-defaults Sallie Mae has been issuing. Until Sallie Mae and other lenders end this practice, it seems students must either find alternatives to pay for school or just hope co-signers live long enough to see the loan paid in full.