Wednesday, June 20, 2012

Cruel and Inhumane Punishment - "Father Struggles To Pay Dead Son's Student Loans"

I have heard so many stories that are similar to this one. It's infuriating, because it is unjust and cruel and unnecessary. The creation of this system of payday scammers of higher education is despicable, and has no place in our society. And yet they are flourishing and cashing in at the expense of borrowers, their families, and US taxpayers. Meanwhile, the best we can get in DC is quibbling over a student loan rate increase. (And I've made my position clear on that issue in interviews on CNN, HLN, as well as several articles that I've written).

In this case, this father had just buried his son and the higher ed payday lenders came after him for money. Here's part of the story:

A few months after he buried his son, Francisco Reynoso began getting notices in the mail. Then the debt collectors came calling.

"They would say, 'We don't care what happened with your son, you have to pay us,'" recalled Reynoso, a gardener from Palmdale, Calif.
Reynoso's son, Freddy, had been the pride of his family and the first to go to college. In 2005, after Freddy was accepted to Boston's Berklee College of Music, his father co-signed on his hefty private student loans, making him fully liable should Freddy be unwilling or unable to repay them. It was no small decision for a man who made just over $21,000 in 2011, according to his tax returns.

"As a father, you'll do anything for your child," Reynoso, an American citizen originally from Mexico, said through a translator.

Now, he's suffering a Kafkaesque ordeal in which he's hounded to repay loans that funded an education his son will never get to use — loans that he has little hope of ever paying off. While Reynoso's wife, Sylvia, is studying to be a beautician, his gardening is currently the sole source of income for the family, which includes his 18-year-old daughter Evelyn.

And the loans are maddeningly opaque. Despite the help of a lawyer, Reynoso has not been able to determine exactly how much he owes, or even what company holds his loans. Just as happened with home mortgages in the boom years before the 2008 financial crash, his son's student loans have been sold and resold, and at least one was likely bundled into a complex Wall Street security. But the trail of those transactions ends at a wall of corporate silence from companies that include two household names: banking giant UBS and Xerox, which owns the loan servicer handling the bulk of his loans. Left without answers is a bereaved father.

The story becomes more problematic when it comes to the buying and selling of these loans. Some of the loans may now be owned by the Swiss government. While I haven't written about that situation, I have covered the fact that these loans are deeply embedded in the global financial markets. Deutsche Bank, for instance, bought student loans from Northwestern University in 2009.

It is a huge mess, but certainly one that can be solved. Bu the question remains: who's going to have the guts to step up to the plate?

Read the rest of Reynoso's struggle here.

 When I did a seance to contact Al about the higher ed payday scheme, he said his: "Ah, I tells ya, my twist, if higher ed payday cash advances had been around in my day, I woulda been best! But I am sorry to hear about that kid's death. Shame."


Anonymous said...

The article makes clear that the federally-guaranteed loans were quickly written off and discharged. It is the private supplemental loans (alternative loans) that are still in place. The company has the signatures on record and doesn't see a reason to make an exception. For example, if I got a loan and you signed, agreeing to pay if I could not, the company could go after you if I was unemployed and could not pay. Does the death make a substantive difference, or merely more dramatic a story? For the company it is the same as the unemployment situation: I couldn't pay, so your signature means you have agreed to pay.

Anonymous said...

My husband consolidated his federal loans with the Bank of Germany. We had to file for bankruptcy in order to try to pay on our student loans. During the bankruptcy, the Bank of Germany then sold his loans to U.S. Bank. We have private loans, too, which are far more dangerous... but I was surprised that this is even happening to federal loans. I feel so sad for the father in this article. It shouldn't be this way.

Anonymous said...

Anonymous 11:41,
Wrong, the federal loans were discharged. And you can't consolidate federal loans with the Bank of Germany. None of your sentences make sense, except that private loans have far fewer consumer protections.

DJ said...

Even if the company is not legally obligated to forgive the loan, they are legally obligated to tell the guy how much he owes, and to whom. Now, granted, we only have one side of the story here, but if the article's claims are true, then the lender is definitely not living up to their legal obligations.

I wonder why the lenders don't try harder to push insurance products onto student borrowers. Of course no lender would do this out of the kindness of their hearts, but they ought to do it because it's insanely profitable. Mortgage insurance (and mortgage insurance fraud) was a big contributor to the subprime housing crisis. And if the lenders can offer student loan insurance and prevent stories like this from happening, it sounds like a win-win for everybody.

Anonymous said...

I do wonder whether we're going to find out that they no longer actually have the paper signed by the borrowers or cannot trace the loans as they get sold lender to lender, as with mortgages. Robo-signing anyone?

Strelnikov said...

"Robo-signing anyone?"'s probably been like that for the last two years. I don't know what's worse: that these scumbags go after dead people, or how the Deptartment of Education tries to collect on paid loans.

May they all burn in hell.

Anonymous said...

Who absolutely LOVES you Baby Blue Eyes?

Anonymous said...

Anonymous 7:18,

No, federal loans cannot be discharged in bankruptcy - this was the case even before private loans weren't dischargable. And yes, the Bank of Germany owned his federal loans. After graduating, he consolidated with them. This was before the Direct Loan program. I wish you were correct, but you aren't.

Anonymous said...

Kid went to music school - mistake number one. Father (is he a U.S. citizen?) co-sgned for loans - mistake number 2. Father doesn't flee back to Mexico - mistake number 3 -

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