New York (MainStreet)-- Nobody wants to think about it, and for good reason. College kids are young, vibrant and healthy. But if tragedy strikes, and death or disability follows, one banking giant is taking the lead by forgiving the remaining student loan debt.
On December 17, Wells Fargo (Stock Quote: WFC) announced that it would forgive a student loan in the event of a college student’s death or permanent disability.
That wasn’t always the case. In the past, a college student’s family was responsible for paying off the loan even if the student had died or was disabled. But Wells Fargo is changing the policy, based on a borrowers’ “future ability to repay”, according to a Wells Fargo spokesperson.
“Borrowers of student loans are a very unique subset of customers for us. They are typically first-time credit customers that we are lending to, based on a future ability to repay resulting from the education they are funding,” says Kirk Bare, head of Wells Fargo Education Financial Services. “When a death or permanent disability occurs, their future ability to repay is compromised. We believe it is important to be responsive to events that affect these unique customers, and their ability to obtain financial independence and repay their loan.”
“A student loan is acquired as an investment in education that is intended to prepare a student for a career and financial independence. Our student lending underwriting process is based on a future ability to repay, rather than a borrowers present ability to repay. When that future ability to establish financial independence, acquire assets, and build an estate is compromised by a death or permanent disability, loan repayment becomes especially burdensome,” added Bare.
In the event of death or disablement, the student’s family must produce written verification or documentation. Once that documentation is verified, the bank will cancel the loan within a few weeks.
The new policy kicks in on Dec. 24, 2010.
Not all banks are following Wells Fargo’s lead. Mark Rogers, a spokesperson for Student Loan Corp., which was recently sold to Discover Financial Services (Stock Quote: DSC), told The Wall Street Journal that co-signors have an obligation to pay off loans when the beneficiary cannot. “A cosigner accepts responsibility for a loan if the other party is unable to pay, and they are expected to honor the contract as they would other obligations,” says Rogers.
But Sallie Mae (Stock Quote: SLM), one of the biggest student loan lenders in the U.S, does have a policy that forgives student loans in the case of death or severe disability.
If you’re a Wells Fargo student loan customer, don’t expect any letter in the mail from the bank detailing the new policy. You'll need to get the information on the bank’s website.
It might be small consolation, but in the event of a tragedy, not adding a huge financial burden to the situation can mean a big difference to a grieving family.