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Wells Fargo Adds Death and Disability Discharges to Private Student Loans

Mark Kantrowitz

December 18, 2010

Wells Fargo announced on December 17, 2010 that it is adding death and disability discharges to its private student loan products. When the student borrower dies or becomes totally and permanently disabled, the remaining debt will be discharged. This new policy applies to all Wells Fargo private student loans, including loans with a cosigner.

Total and permanent disability is defined as the inability to work and earn money because of an illness or injury that is expected to continue indefinitely or to result in death.

Upon verbal or written notification of the student’s death or total and permanent disability, collection efforts will be suspended while a Wells Fargo representative works with the family to complete the steps required for a loan discharge, such as submitting acceptable documentation.

Only the death or total and permanent disability of the student will result in the discharge of the remaining loan balance. Death or disability of the cosigner does not result in a discharge of the repayment obligation.

Wells Fargo is the third lender to provide a death and disability discharge for private student loans. Sallie Mae added a death and disability discharge to its Smart Option private student loan in early 2009, followed by the NYHELPs loan from New York State’s Higher Education Services Corporation in April 2009.

Federal education loans also have death and disability discharges. If the borrower of a Federal Perkins, Federal Stafford, Federal PLUS or Federal Consolidation loan dies or becomes totally and permanently disabled, the loan will be discharged.

Since July 23, 1992, Parent PLUS loans may also be discharged upon the death of the student for whom a parent received a Parent PLUS loan. Parent PLUS loans are not, however, discharged if the student becomes totally and permanently disabled. Only if the borrower of a PLUS loan becomes totally and permanently disabled is the PLUS loan discharged.

The Higher Education Opportunity Act of 2008 made it easier for borrowers of federal education loans to obtain a total and permanent disability discharge starting July 1, 2010. The 3-year conditional discharge period was eliminated. Instead, the disability must have lasted or be expected to last at least five years or be expected to result in death. The loan, however, may be reinstated if the borrower has annual earnings from employment that exceed the poverty line for a family of two within three years of the discharge. The loans may also be reinstated if the borrower fails to return any disbursement received within 120 days of the discharge or if the borrower receives a new federal student loan (not including consolidation loans) or a new TEACH grant. Veterans may receive a total and permanent disability discharge if the VA determines the borrower to be unemployable due to a service-connected condition.


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