Marcia DeOliveira-Longinetti went through a nightmare most parents hope to never even imagine. As reported by The New York Times, an unknown assailant killed DeOliveira-Longinetti’s son in 2015.
To add to her pain and turmoil, she found out she was responsible for paying his student loan balance even though he was dead — she had cosigned her son’s student loans from a New Jersey state agency.
DeOliveira-Longinetti asked the state agency to forgive the balance, but they refused her request. She was forced to continue making monthly payments as she grieved over her murdered child. Her case brought much-needed attention to this terrible issue. Now, lawmakers are taking action.
Unanimous approval for a new bill
On October 20th, the New Jersey State Senate approved a bill that would require the state agency responsible for student loans to forgive the debt of the deceased or those who become permanently disabled.
Lawmakers unanimously approved the bill with a 34-0 vote. Next, it goes to the desk of Governor Chris Christie for either his signature or veto. He has 45 days to make a decision. If he does sign the bill, it will go into effect immediately, providing instant relief to families.
The new bill would stop the state agency from going after families who have lost loved ones with student loan debt. If Governor Christie does sign the bill into law, the state would forgive about 70 loans a year, at a cost of $1.5 million.
When family is responsible for student loan debt after death
While the New Jersey legislation has brought attention to this issue, it’s not a new or novel development. Many families nationwide have gone through the pain of continuing to make student loan payments on behalf of a deceased or disabled relative.
Whether or not lenders discharge a loan depends on the type of loan and if there was a cosigner.
If you have federal student loans, the government discharges the debt after they receive proof of death, such as a death certificate. For Parent PLUS loans, the lender forgives the debt if a parent dies or if the student the loan benefitted passes away.
When it comes to private student loans, whether or not families owe the balance of the debt after the death of the borrower depends on the individual lender. Some offer discharge policies even if the loan had a cosigner, but not all do.
For example, Sallie May has policies that forgive loans if a borrower dies, but National Collegiate Trust does not. Private lenders are under no obligation to forgive student loans after death. If you are a cosigner, you could be held responsible for the debt after the death of the borrower.
Additionally, in community property states, spouses of deceased borrowers could still responsible for the loans, even if they were not a cosigner. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
There have been attempts to petition private lenders to change their policies, but many lenders have not updated their procedures. For now, the only option family members have with these companies is to call them and ask for an amended plan. Some lenders will at least reduce the interest rate, overall balance, or monthly payment.
In the case where lenders do forgive student loans due to death, there can still be tax implications. The IRS considers most forms of discharged debt, including student loans, as taxable income. So if a lender discharges the loans of the deceased, the family may be hit by a large tax bill.
The Department of the Treasury specifically states in the Higher Education Act of 1965 that student loans forgiven due to death or disability are taxable.
In September 2016, Congressman Peter Roskam sponsored a bill that would amend the Higher Education Act to provide an exception for deceased or disabled borrowers. The bill would exclude the family members from paying income tax on the discharged student loan balance.
Student loan reform
The student loan system, both federal and private, has been under intense scrutiny from the public and politicians recently. Rising balances, predatory practices, and hardships after families face tragedies have caused many to call for reform to the current systems.
The New Jersey bill is still in progress and awaiting Governor Christie’s decision. But the unanimous vote from the State Senate is just the latest sign of major change throughout the country on student loans.
As student loans continue to evolve, it’s important to do your due diligence before taking out debt. Since the government discharges all federal loans in the case of death or disability, exhaust your federal loan options before turning to private loans. If you need a private loan to fill the gap for your education, check their policies before signing.
No one wants to consider their own mortality, but thinking ahead can save your family from substantial heartbreak and financial hardship.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.54% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of March 18, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 0318/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.5% effective February 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.54% – 7.12%3||Undergrad & Graduate|
|2.54% – 7.27%1||Undergrad & Graduate|
|2.67% – 8.96%4||Undergrad & Graduate|
|3.23% – 6.65%2||Undergrad & Graduate|
|2.69% – 7.43%5||Undergrad & Graduate|
|2.98% – 9.72%6||Undergrad & Graduate|