<p>I wonder how many families exist in which the parents consigned the student loans, and then the student died before repaying them? Surely it is a very small number? The banks may legally have the right to demand payment of the loan after the death of the student, but that action exhibits a lack of compassion and empathy that is slimy and mean spirited. </p>
<p>I know banks exist to make money, but it seems to me that there could be a LOT of money to be made by a bank that enters into the student loan business with a plan to personally counsel the students and parents about loan repayments, the student’s ability to repay the loan based on their declared major and expected salary upon graduation, and, as was already mentioned, a requirement for a life insurance policy to cover the loan repayment. There is plenty of evidence that businesses that act with compassion towards their clients can stand to make a LOT of money.</p>
<p>But since student loans can’t be discharged through bankruptcy or even death, there is no reason for banks to care about anyone’s ability to repay the loan.</p>
<p>As others suggested, mandatory life insurance should be required for a significant loan. S is off to med school and will have $200k in debt when he is done. Life insurance is a non-negotiable if we are co-signers of his loans. I see no reason why the bank shouldn’t require insurance to avoid being accused of lacking compassion. The alternative is to charge everyone more to cover the costs of defaults due to death.</p>
<p>The term life insurance policy is a wonderful idea on how to resolve that. If you cosign, then take out a policy on your kid, for the term of the loan. They are very very cheap. Some colleges even offer them, I have heard. Many colleges have tuition insurance that covers students while they are attending college, in case of sickness or death. Getting a term life policy is a no brainer. </p>
<p>I hear this a lot, but I’ve never seen any evidence considering loans have been around for a very long time. Either way, that wasn’t my point and you’re right, it’s not the issue.</p>
<p>This is a bank loan pure and simple. If you own a house free and clear and decide not to insure it then you must be prepared for a complete financial loss. If you have a mortgage on the property, the lender will require homeowner’s insurance. You may want to argue whether a co-signer should be allowed to take on that financial risk by forgoing life insurance in case of the death of the student. It would seem prudent for a parent to purchase that to protect against financial ruin in such a catastrophe. But there is nothing “mean spirited” about a bank collecting this loan from a co-signer if the student can no longer make payment.</p>
<p>Unless the terms of that contract are illegal to begin with or are subjected to be overridden by Federal/State laws for various reasons…including if the borrower/co-signer are permanently disabled and loan terms would pose an “undue economic hardship” as defined by those laws. </p>
<p>The above illustrates how sometimes being too narrowly legalistic could not only result in well-deserved bad PR due to tone-deafness of the local society/social norms…but also wrong in some cases because it overlooks how contracts are also subjected to other laws/regulations which could override or even declare some/all contractual terms null & void in some extenuating circumstances. </p>
<p>In short…it’s not always as simple as “a contract is a contract”…</p>
<p>I agree that many banks have malicious practices, but this is not one of them. The death of these students is to be sure most tragic but not the fault of the bank. They should not need to bear the responsibility of these students. On the other hand we can see the argument as the banks thinking of the students as investments. If you think of it this way the death of a student should be considered an utter and unrecoverable bankruptcy of sorts. For example how would the Euro zone view the complete downfall of the Greek government? I’m sure they would forgive their loans.</p>
<p>Every loan which has not only expectation of repayment, but also interest/penalty fees is a form of a risky investment banks/private individuals partake in each time they lend out money. It’s something I’ve been quite mindful of whenever I borrowed or lent out money. </p>
<p>As for the Greek situation…that’s actually a very different situation. In their case…I’d say they pulled a Donald Trump…where they borrowed so much money that they have the leverage to convince them to ease loan terms…or their defaulting/“bankruptcy” could easily bring down the rest of the EU. </p>
<p>They epitomize the old adage…if I owed a thousand dollars…the banks own me. However, if I owed several hundred million…and that makes up a sizable chunk of their lent out assets…they’re effectively owned by me. :)</p>
<p>When I spoke with parents regarding loans for college, I made sure they knew that Parent PLUS loans are canceled if the student (or the parent whose name is on the PLUS loan) dies. I actually had several students die while I worked in financial aid.</p>
<p>I totally agree with this statement, eastcoascrazy. This is an ethics issue, and private lenders should treat each situation individually. Hounding families for money owed by a loved one who is permanently dead is immoral and wrong. You can’t imagine the grief and sadness those parents will forever feel once they realize their son or daughter is truly gone. Not everyone is fortunate enough to take out a life insurance premium either, since the majority of students with large student loan debt come from working- and middle-income households. The wealthy can afford to send their kids to college. </p>
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<p>arcticwind, you sound like a robot with no emotions. I guess generational debt slavery is the next solution (passing the debt to other relatives until the entire family has been wiped out of their assets and savings). I thought feudalism, let alone any form of indentured servitude, were outlawed in Western nations. What we are seeing is a contemporary soul-crushing version of slavery with no escape. Based on your statement, if relatives (even if they’re on retirement and way beyond working age) must continue to pay the debt after a loved one’s death, then America is morally retrogressing. I can only imagine what our Founding Fathers plus Abraham Lincoln are thinking: shaking their heads in shame. People in America can have their auto, credit card, mortgage, and medical debts wiped out in bankruptcy court (your credit score will drop, but that’s another story). There should be no exception for student loans in bankruptcy.</p>
<p>I don’t see how feudalism comes into it. The situation is that a person who isn’t a good credit risk wants to borrow money, and so he needs a co-signer. If the first person doesn’t pay, the co-signer has to. That’s the whole point of getting a co-signer. If you can’t afford to get life insurance for the primary obligee, then you shouldn’t co-sign. The exact same thing could happen with a car loan.</p>
<p>^ If that person cannot make payments on the car, then the bank repossesses the car. Most people do not purchase cars over $45,000. If a borrower cannot afford payments on student loans, are they suppose to return their degrees? It’s becoming more common for non-wealthy students to graduate with high-five-figure and six-figure debt by the time they finish both college and graduate school! You’re comparing apples to oranges.</p>
<p>I’m comparing loans to loans. If a bank loans you, say, $25,000, on the condition that you get a co-signer, and then you die, why should the bank just kiss that money goodbye? I see that it would be nice for them to do so, and maybe sometines they do, but I can’t see any ethicial requirement that they should do so, especially if you could have bought life insurance.</p>
<p>I can imagine a very unfortunate situation in which the family buys life insurance, but the student commits suicide within the limitation period, and the insurance company doesn’t pay.</p>
That’s right - it’s unethical and dishonest for a cosigner to not pay back the loan they agreed to pay when the bank loaned the money in good faith. </p>
<p>What do people think the point of having a cosigner is? If they’re not obligated to pay back the loan then there’s no point in having them and if there’s no cosigner the borrower would have never received the loan in the first place and wouldn’t have the opportunities they wanted.</p>
<p>Sometimes…s^&t happens as they say and a co-signer/borrower who once had the financial means to be able to anticipate paying back loans being taken out is suddenly unable to due to some unforeseen circumstance 4+ years later…whether that’s due to a sudden family medical emergency which wipes a family out financially or an economic downturn like the one we had in 2008…one with effects still being felt to this day. </p>
<p>As with all risky investments…banks/lenders have the right to do all they can to minimize their risks. However, they cannot expect/demand that the risks be absolute zero…especially if the borrowers/co-signers are subsequently no longer able to pay.* If they didn’t want any risks…they shouldn’t be in the lending business in the first place. </p>
<p>Moreover, what if everyone in a given family dies so that there’s no one to collect on? Would it even be feasible…much less morally ethical for banks/lenders to demand payment from the dead?**</p>
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<li>If loan terms prove too onerous due to extenuating circumstances and cause “undue economic hardship” as defined by Federal/state laws, then a moratorium/forgiveness on loan repayments & interest/of the loan altogether may be mandated…regardless of the original terms of the loan contract.<br></li>
</ul>
<p>** In actual practice…the borrowers/lenders would be out of luck…especially if the family has no estate or one too small to cover the loans taken out.</p>
<p>I am honestly surprised and dismayed by many of the responsese on this thread. The parent co-signed the loan as a requirement of the bank. The goal was for the STUDENT to repay the loan with his or her future earnings after graduation. For goodness sake, the student died and obviously has no future earnings. The parents are likely devestated and possibly unable to work and have their own obligations. As Eastcoastcrazy stated, this is a very unusual situation and the bank could much more easily absorb this loss than the distraught parents who just lost their child.</p>
<p>A co-signer is for when the LIVING person who took the loan is unable or unwilling to pay. The loan should be discharged upon the death of the person who took it out, as it would be if a co-signer was not required. </p>
<p>I can’t believe that banks are in such dire circumstances that they can’t absorb the very rare occasion when a student dies unexpectedly. The banks undoubtedly figure some losses into their loan rates and make a lot of money on these loans.</p>
<p>What happened to compassion in business and in life?</p>
<p>The student borrowed the money. He spent the money. The parent co-signed the note, promising to repay the money. Why, between the parent and the bank, should the bank have to absorb the cost? I will say this: if the bank has to absorb the cost, then all borrowers will absorb it, because the bank will just charge more for loans to cover this cost.</p>
<p>OK, you might be able to convince me that if the cosigner themselves experienced an economic reversal of fortune and repayment of the loan would, in your words, put them in a situation of undue economic hardship, then the loan should be forgiven. In fact it sounds like the law already stipulates this.</p>
<p>But in this situation I have seen nothing to indicate that something happened and the the cosigner, who was once in a position to repay the loan, no longer can.</p>