UPDATE: Wells Fargo To Forgive Loans In Case Of Student Death, Disability
18 December 2010 - 3:15AM
Dow Jones News
Wells Fargo & Co. (WFC) is changing the terms of its private
student loan agreements, forgiving loans beginning Friday if a
student beneficiary dies or is permanently disabled.
Previously, a student borrower's co-signer -- often a family
member -- was required to continue repaying the loan, even if the
student died or became incapacitated.
Wells Fargo said the policy shift was unrelated to a proposal
currently wending its way through Congress that would require
lenders to more clearly detail the responsibilities that
co-borrowers would have in the case of a student's death or
disability. The bill wouldn't require lenders to discharge loans in
such circumstances.
The U.S. House of Representatives passed its version of the
Christopher Bryski Student Loan Protection Act in September, and
the bill was introduced in the Senate earlier this month. The bill
honors a Rutgers University student who died in 2006 but whose
family continues to make monthly payments on his $44,500 in private
loans.
"We constantly are looking at our policies and looking at how
our policies match up to customer needs," said Bonnie Wallace, vice
president of enterprise partnerships at Wells Fargo. She said the
company had been looking at options for such loan forgiveness since
January.
Meanwhile, private student loan giant SLM Corp. (SLM), commonly
known as Sallie Mae, already has in place a policy to forgive
student loans when the beneficiary dies or is disabled.
Sallie Mae's Smart Option Student Loan provides co-signers
"immediate and complete loan forgiveness if the primary borrower
dies or becomes permanently disabled," according to company
spokeswoman Martha Holler.
Not all major lenders are so forgiving. Student Loan Corp.
(STU), whose shareholders Thursday agreed to sell its student loan
operations to Discover Financial Services (DFS), doesn't offer
relief to co-signers upon the death or incapacitation of a primary
student borrower. Student Loan currently is 80% owned by Citigroup
Inc. (C).
"A cosigner accepts responsibility for a loan if the other party
is unable to pay, and they are expected to honor the contract as
they would other obligations," Student Loan spokesman Mark Rodgers
said.
A representative from Discover wasn't immediately available for
comment.
Regarding whether Student Loan would consider changing its
stance on loan forgiveness, Rodgers said, "As a general rule, we do
not speculate on future business policies."
Wells Fargo won't send letters informing current borrowers and
their co-signers of the new plan, but it will post information on
its website and tell schools of the change. New credit agreements
will state the loan forgiveness policy.
Student lenders say it's difficult to know how many borrowers
may need loan forgiveness because of a student's death or
disability, as they don't know if all co-signers actually ask for
help.
Wallace said she couldn't predict how many loans the shift in
policy would affect, though it would be "much greater than one a
year."
-By Melissa Korn, Dow Jones Newswires; 212-416-2271;
melissa.korn@dowjones.com
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