In May of 2011, when he was almost 92-years-old, my father cosigned on a $20,000 Sallie Mae student loan for his grandson. Because his short-term memory was failing him and he had already made some bad financial decisions, I’m sure he did it with encouragement from my brother, father of the student. I’m certain that he did not, as the agreement cautioned, “thoroughly read the contract before you sign it.” At the time, I was not yet totally overseeing Dad’s finances and was unaware of the arrangement. The estimated term of the loan was 7.8 years. I assume that the loan grantor could do the math and determine that even if it was paid off in the minimum amount of time, Dad would be over 100 years old by then.
In December of 2014, when Dad was 95, we moved him into an assisted living facility, and I began getting all of his mail and paying all of his bills. It was then that I became aware of the monthly statements coming from Sallie Mae reminding my elderly dad that “cosigners have the same obligation as the primary borrower to repay the loan.” Whenever a payment became past-due, I called my brother to let him know that his son was putting his father’s credit rating in jeopardy. On more than one occasion, I intercepted letters from Sallie Mae saying either Dad or his grandson needed to “act now to resolve your delinquency.” At least twice the grandson applied for and was granted a “request for forbearance” for a certain period, with interest still accruing.
The Co-executors of the Estate
My father passed away on January 4, 2017, at age 97. At the time of his death, the balance on the loan was $13,129! Now, as co-executors of his estate, another brother and I had to determine whether or not the estate/family trust would be liable for the amount of the loan. At first no one could find the original Promissory Note with the “fine print” about what would happen upon the death of the cosigner, so we did some online research.
Some sources warned that non-federal student loans would likely have an auto-default clause, and that upon the death of the co-signer, the loan would be declared in default and due and payable-in-full immediately. Some went on to say that as long as the student kept making regular payments, the loan grantor would not demand immediate payment, but that if the student fell behind, the estate would be liable.
Not Legally Responsible
The author of an article in Bankerate.com claimed to have spoken with the managing director of corporate communications at Sallie Mae who told him that “Sallie Mae’s current policy is to not seek repayment of the loan from the estate of a cosigner, and so a beneficiary of the estate would not be legally responsible for the loan payments.”
The Actual Fine Print
The original Promissory Note was finally located, and other than dire warnings to a living cosigner of what his or her responsibilities would be should the borrower not pay, Section K “Default; Whole Loan Due; Interest Rate After Default” simply said, “Subject to applicable law, and the definition of “Default” in Section B above, you may declare my loan in default if: ….# 6. Any cosigner dies.
The Horse’s Mouth
In spite of the father’s plea for us to “just wait and see what happens” before taking the amount of the loan out of his portion of the estate, at that point we contacted Salle Mae directly. During the phone call, my co-executor brother was told that when they (Sallie Mae) received a copy of the death certificate, a recent loan statement and a cover letter recounting the call, “[Grandson] would be the sole person or entity responsible for the balance of the loan and that no claims will be made now or in the future against the estate of the deceased.” The documents were sent, and as we have heard nothing further from Sallie Mae, we are assuming the estate will not be held liable for the loan, even if payments are not made by the borrower. We don’t know why Sallie Mae did not choose to automatically default the loan as stated in the agreement, or if the result would be different for another borrower.
A National Problem
Over 44 million Americans have student loan debts to repay. Total student debt is approaching $1.3 trillion, with borrowers in the 20-30 year old category having an average monthly student loan payment of just over $350. The Department of Education has estimated that there are more than 8 million student loan borrowers who have not paid the monthly required payment in over a year. Large-scale non-payment of student loans has broad economic implications that could touch every family in one way or another. Just this one student loan has had economic implications for the 9 descendants of an elderly man who never should have been considered a viable cosigner on his grandson’s loan.
by Marti Lythgoe, National List Editor