Legislators in New Jersey are finally showing some compassion for parents grieving a deceased child. Under recently enacted legislation that amends the state’s college loan program, a parent or guardian cosigner is no longer obligated to repay a loan of a student borrower who has died.
What helped sway the legislators to modify New Jersey’s student loans, which total roughly $1.9 billion, was testimony from grieving parents. One mother whose son was murdered was told by the Higher Education Student Assistance Authority (HESAA), which runs New Jersey’s student loan program, that her request to discharge a loan she had co-signed for her son didn’t meet the threshold for loan forgiveness.
“New Jersey was one of the less accommodating states, until this change,” financial aid expert Mark Kantrowitz, publisher and vice president of strategy for Cappex.com, tells Financial Advisor. “They came under a lot of criticism for the policy.”
The federal government discharges federal student loans if borrowers die or become totally and permanently disabled. According to Kantrowitz, so do 12 of the nation’s 38 education lenders who provide private student loans—non-federal loans issued by banks, non-bank financial institutions, credit unions and state loan programs. HESAA is now one of five private lenders that discharge student loans only upon death. It still reserves the right to make the final determination on disability-related discharge requests.
If a private student loan borrower dies and the loan program doesn’t offer a death discharge, the family should call the lender and ask for a “compassionate review,” says Kantrowitz. “Sometimes lenders will forgive the debt even if they have no legal obligation to do so,” he says, noting this occurs most often when the borrower was a service member or a first responder, or if the cosigner is incapable of repaying the debt.
John Crosby, director of advocacy for the Financial Planning Association of New Jersey (FPANJ) and head of Individual Financial Services LLC of Middletown N.J., is pleased the new regulation requires the New Jersey loan program to replace the language in its loan agreements rather than allowing case-by-case decisions when student borrowers die. “It takes the decision-making away from somebody on a board,” he tells Financial Advisor. “There’s no questions about it and you know that going in.”
Crosby, who has counseled families on similar tough situations with HESAA, points out that federal Parent PLUS loans are also forgiven should a parent borrower die. But a private student loan that’s co-signed by a parent is not forgiven if the parent dies.
Families should contact their loan servicer in the event of a borrower’s death or disability. They also need to be aware that the IRS treats the balances on student loans forgiven for death or disability as taxable income, he says.
Last year, U.S. Senators Chris Coon (D-Del.), Angus King (I-Maine) and Rob Portman (R-Ohio) introduced legislation to eliminate this burden on student loans. It also applies to parents with PLUS loans, should the parent or their child either die or develop a total and permanent disability.
The bill unanimously passed out of Ways and Means in 2016 but didn’t advance beyond that. “We plan to reintroduce in the next few weeks and are hopeful it will advance this year given the strong bipartisan support,” Sean Coit, communications director for Senator Coons, tells Financial Advisor.
N.J. Is Discharging Loans For Families Of Deceased Students
February 21, 2017
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