There is an old saying that the only two things certain in life are death and taxes. After reading this article, you may believe that a third category should be added — private student loans.
Many borrowers rely on private student loans to help make their dreams of obtaining a college or graduate degree a reality. These loans can help bridge the gap between savings, grants, scholarships, student aid, and federal student loans, but are often more expensive and offer fewer protections than federal loans. This is particularly true when it comes to disability and death benefits.
If a student loan borrower becomes totally disabled or dies, his or her federal student loans are discharged (cancelled). Unfortunately, this is generally not the case with private student loans. While there are some lenders that will discharge private student loans based on death or disability, such as Wells Fargo, Sallie Mae, the New York Higher Education Services Corporation, and Discover, the majority do not.
However, many lenders do offer a compassionate review process. In this procedure, borrowers can ask their private student companies for financial relief on a case-by-case basis. If the borrower can demonstrate that he or she is not able to repay the student loan due to circumstances beyond his or her control — such as being diagnosed with a severe, debilitating disease that renders them completely unable to work — then the lender may be inclined to discharge the loan. The company may ask for proof of the need for financial relief, such as medical records, a letter from the doctor, or other documentation.
Compassionate review can also be instituted in situations where a borrower has died and a co-signer is left with the borrower’s student loan debt. In these cases, the debt often becomes due immediately, creating substantial hardship on the family in addition to the grief of losing a loved one. The family can ask the lender for financial relief, providing documentation of the borrower’s death and potentially show proof that they are unable to pay back the student loans on behalf of the borrower. Borrowers concerned with this should consider applying for a student loan without a cosigner.
In other cases, public pressure may work to convince private student loan companies to discharge the student loan debt. This has occurred in multiple situations where a young college graduate has died tragically, leaving his or her parents saddled with substantial student loan debt. When local newspapers and television stations ran stories of these families’ plights, the loan companies worked with the families to offer financial relief.
If you become totally disabled or die, the options for discharging your private student loans are relatively limited. Private student loans cannot be discharged in bankruptcy, and only a handful of companies offer discharges for death or disability. However, requesting compassionate review may enable you to obtain relief, and if that fails, seeking publicity for your or your family's situation may ultimately motivate your student loan servicer to discharge or modify your loan in the event that you are totally disabled or die.