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.
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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
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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
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
Wells Fargo is the third lender to provide a death and disability
discharge for private student loans. Sallie Mae added a
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
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.